Written by Chris McCullam on Wednesday 11 June 2014
Despite some fine talk in Marketing circles, Financial Services firms have never quite managed to shrug off the mantle of product flogging.
The Chancellor has recently given FS companies a new impetus to tackle this though and to redefine how consumers see them. The ‘product’ sale of the annuity is on its last legs and the tantalising offer of guidance as you approach retirement almost begs providers to offer customers a ‘solution’ to their particular financial requirements in retirement. One of the big complaints about annuities was the perceived lack of control over the cash; it was packaged off to the annuity provider never to be seen again and the regular drip, drip, drip of pension payment soon became further disconnected from that tantalisingly large sum that savers worked so hard to build.
The SIPP had already gone some way to removing this concern, however, despite the increasing volume of sales and asset inflows into SIPP wrappers they were largely the preserve of the affluent and high net worth. Apart from the complex wording of the regulations and the availability of equities the main difference between a simple, bog standard SIPP (that most providers offer) and a typical personal pension has been the charging structure and the ability to draw cash out as and when post 55 rather than in a one shot withdrawal to start an annuity. The budget changes have brought these existing retirement products closer together; blurring the lines between accumulation and decumulation in favour of giving a customer more control over how they use their long-term savings.
As product providers work to redraw their propositions post budget the way in which they engage consumers has got to change. Flogging SIPPs as a solution to the accumulation/decumulation question won’t be viable. The government has promised guidance for everyone retiring so providers need to make sure they engage consumers throughout the retirement journey, they can’t afford to sell a SIPP to a 42 year old and then just facilitate drawdown at age 68. The aspirational provider led conversation about engagement, goals and performance needs to be an ongoing reality, what was typically the domain of the financial adviser must become part of the solution offered by providers. The regulator has an important role to play in making this engagement easier for providers, many of the rules and regulations that are geared around products, to say nothing of advice, need to be reviewed in light of the change in focus. Steve Webb MP has put another suggestion forward about scrapping lifetime allowances to keep the debate going.
The early aspirations of the wrap platform were to enable customers to hold a bunch of assets in the most favourable tax wrappers and enable the movement of those assets between containers easily, perhaps dusting off those very early propositional designs might be in order as the aims and objectives behind pensions, ISAs and other long term saving vehicles coalesce. There will still have to be some kind of product/wrapper/vehicle/container in place to support the future retirement solution but the warmth with which the budget announcement was received suggests that whatever these ‘products’ are going to be they will need the flexibility to allow customers to move in, out and between them as the sunset of their life dips toward the horizon.
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