Investec: UK pension reforms are less radical than hoped

The UK government’s pension reforms which came into effect on April 6 were championed as the biggest changes to happen to the pensions industry in a generation, however, despite the publicity that accompanied these changes, the reality is perhaps rather less revolutionary than it might have been anticipated, according to a survey among leading UK independent financial advisers (IFAs) conducted by Investec Structured Products.

“We found that confidence in the government’s strategy on pensions freedoms fell after the reforms came into play,” said Gary Dale (pictured), head of intermediary sales at Investec. “While the majority of respondents still expressed confidence in the changes, many stated that poor guidance delivery was a cause for concern and these sentiments were heightened in the immediate aftermath. Claims of ‘inadequate planning’ and fears that without access to advice clients would make bad choices appear to have gained momentum.”

The survey results gave a strong indication that many IFA clients are now looking to explore the options offered by alternative investments, such as equity income funds, structured income products and investment bonds - as well as some continued faith in traditional annuities,” said Dale. “While IFAs are undecided as to whether this is a direct result of the pension changes or if clients have always shown an appetite for varied portfolios, it is nonetheless promising to see consumers seeking to gather market intelligence to better inform their investment choices.”

The survey also found that, following the introduction of the pension reforms, there was a decline in IFA expectations of the impact of the changes. In the run up to the implementation of these changes to the pensions industry, almost 80% of those surveyed said they thought these would have a significant effect. However, this fell by 11% in the weeks following implementation as fears about mass withdrawals subsided, underlining the uncertainty that surrounds the reforms and the confusion as to what should be expected.

The survey revealed that, in the face of increased investor responsibility, retirees are looking to diversify their portfolios, said Dale. Investec has engaged with life insurance companies to discuss product development within their actuarial annuities models to introduce products that have a sustainable income stream or a sustainable capital repayment.

“What is clear is that, regardless of the pension reforms and the associated benefits and potential pitfalls, longevity of funds remains the most important factor to clients in retirement,” said Dale. “Other concerns, such as death benefits, and level income are, of course, issues that remain significant to IFA clients, but the greatest concern is that their retirement savings could run out.”

It is the responsibility of IFAs to help protect their clients and ensure that retirees are confident that their pensions and savings are being used to maximum effect, said Dale. Adequate advice services and planning bureaus “must be accessible to those who are potentially vulnerable, in order to ensure that they are not intimidated by the massive variety of financial options now available to them in retirement and to guarantee that they are confident in their ability to manage their own wealth,” said Dale.

While the market is offering new opportunities, it is not a question of structured product providers launching pension products, said Dale. “I don’t think structured products providers will start issuing structured pension funds any time soon because this could bring confusion to the market,” he said.

The survey findings come from a sample of 151 respondents carried out between March 25 and April 17, 2015.

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Investec: UK pension reforms are less radical than hoped