The rapid growth in the at-retirement market is finally starting to attract the attention of corporate intermediaries who are increasingly preparing to target what will become a significant new business channel in the next five years.
The at-retirement market has tripled in the last 15 years to £13.6bn in 2007 and a recent report from Watson Wyatt predicts it will more than double in the next five years to £30bn a year. But until relatively recently most workplace pension arrangements have done little more than offer a bare-bones annuity service, effectively allowing valuable clients to simply walk out of the door.
Trust-based schemes have been holding themselves out as offering good value annuities while not necessarily covering obvious bases such as impaired lives and alternatives such as income drawdown and third way solutions, opening themselves up to potential legal and regulatory action, according to some experts. Contract-based schemes on the other hand have generally been leaving staff to fend for themselves, perhaps with access to an online annuity supermarket that they must navigate without expert help.
The Pension Regulator is so concerned at the way members of the public are drifting into potentially unsuitable or poor value retirement vehicles that in May it issued a regulatory reminder of trustees duties on what they should explain to employers, which spells out not just the importance of the open market option, but also that there are more options out there than just annuities for those hitting retirement. The guide specifically points to the ability to transfer into a personal pension and opt for unsecured pension.
“I met the HR department of a large company that had spent a lot of money on the launch of its new pension branding and unfortunately had to point out to them that the glossy brochures they had had printed were not up to scratch because they did not deal with all the alternatives at retirement,” says Jonathan Watts-Lay, director of JPMorgan Invest. “The reality is that the at-retirement space is becoming increasingly complex and important, which is why it is shooting up the agenda at the regulators.”
With such a big a wave of cash set to hit the DC at-retirement market, intermediaries are wising up to what should become a new breed of client – the retired former employee. JLT Benefit Solutions is one firm with big plans for how to retain former employees as clients and sees platforms as the way to lead this. Following the engagement of a dozen of Orbit’s platform team several weeks ago, it is now planning to develop its tech offering to allow it to keep hold of employees as clients for life. With many people facing retirements stretching well into three decades, the firms managing director Duncan Howorth sees potential in advising individuals who will be taking alternatives to annuities.
JPMorgan Invest is hoovering up business from the employees of its corporate clients. Staff attending seminars within three months of retirement are explained in a group situation all of the options open to them, but without formal advice, then at the end of the meeting they are asked if they want a face to face meeting. “At the end of the seminar nine out of 10 of them will say ‘that was really useful but I really need someone to sort things out for me’. They then get face to face advice and are offered an annuity or USP,” says Watts-Lay. “For many of them annuities are not suitable, particularly those who are phasing their retirement, so they are transferred to our Sipp where their drawdown plan is administered.
“Once they have had their affairs sorted out for them by us we then know they are going to stay with us, and will come back to us at age 75 when they have to make a decision about annuities all over again,” he adds.
Providers are making the at-retirement market an easier place for advisers to do business. Scottish Widows for example is one provider that has added a self-investment option to its group products that now has a drawdown capability. Ann Flynn, senior marketing manager, corporate pensions at Scottish Widows says: “We can see that the decumulation phase is becoming recognised as a significant new business driver in the future and products need to reflect that. As has been said, retirement is no longer a cliff-edge and these more flexible products are designed to facilitate flexible retirement.”
With half of 65 year old males now expected to live past 86, the retirement space is set for a serious boom. Firms that can tap into their clients’ employee bases and keep them through their dotage will find a rich seam of business. If retirement is to be a process and not an event, clued up advisers will want to be part of it.