In delivering solutions like this to market providers must make sure that costs are transparent so if customers are buying into a capital guarantee they understand what they are being charged for this peace of mind. This is critical as in the long-term performance will be judged by the return that has been delivered.
And there remains the longevity question, for those choosing a fund-based income solution they are choosing to take on the longevity risk. It remains to be seen whether the industry will deliver a palatable solution to this as history has shown that it is a challenge to encourage people to give up something now to protect against something that may or may not happen in 15 to 20 years’ time.
In my opinion, the Budget has helped to provide those approaching retirement with a better outcome, not only because it will be the catalyst for product innovation, but because it has made pension savers engage with the market and made them more aware of the options they have at retirement.
With savers now more interested in their income options, providers anticipate that more people will shop around and consider the alternative income solutions now available as a result of the freedoms and improve their income outcome.
Although the new rules may have changed customer-buying behaviour it has not actually changed what people desire in retirement - a solution that makes the most of the pension fund they have spent decades amassing.
In the main, the products that exist in the market meet the needs of today’s pensioners and are now far more accessible. Our job is to work together as an industry, with advisers, to help clients select the combination of income solutions that will afford them the retirement they want.
Vanessa Owen is head of retirement products at LV=
Key points
The immediate to short-term response to pension freedoms led to a number of initiatives aimed at good customer outcomes.
Immediately after the Budget the sale of lifetime annuities fell.
One of the recurring themes among those approaching retirement is the fact that people want greater income flexibility.
