Industry figures have called for flexibility to be built in to defined contribution solutions, as the first post-Budget products aimed at members looking to draw down income at retirement reach the market.
The introduction of new pension flexibility in this year’s budget may make DC schemes more appealing to savers, but will require the development of a wide range of retirement products to allow retirees to take full advantage.
There’s been a problem with annuities for a long time and drawdown has been an option, but it’s quite complicated and only for people with a large pot
Andy Cheseldine, LCP
Andy Cheseldine, partner at consultancy LCP, said it is predicted that most DC savers would want to take the drawdown option.
He said: “There’s been a problem with annuities for a long time and drawdown has been an option, but it’s quite complicated and only for people with a large pot.”
Cheseldine said new products needed to be flexible and a key aspect to this is the ability for savers to transition between their accumulation and decumulation arrangements
quickly and cheaply, as the transfer process could be expensive.
“[With] stamp duty the transaction costs could be 1 per cent and depending on the market you could lose 5-6 per cent being out on the market,” he said.
Last week, asset manager AllianceBernstein launched a platform combining target date funds with an income drawdown solution, whereas provider Aegon and asset manager Legal & General Investment Management are among those who have launched funds that provide an income while allowing members to remain invested.
David Hutchins, head of AllianceBernstein’s pensions strategy group, said that while there had been interest in the product, “a lot of people haven’t sorted out their default for accumulation post-Budget so they haven’t been thinking about the decumulation side”. He added: “There’s a planning blight which is holding the whole industry back.”
Nick Dixon, investment director at Aegon, said market needs would be met by a combination of three different kinds of product – annuities, flexible drawdown and flexible guarantees that “guarantee a level of income for life, but if investments perform above a certain threshold you get capital back, below and you have guaranteed income”.
