This week Jeremy Fawcett (@jfawcett), Head of Direct, looks at how drawdown is evolving and confirms a new venue for the oversubscribed Platforum D2C Conference.
It’s now common knowledge that the average pension pot is only enough to buy the imaginary Starbucks annuity which pays out one expensive coffee a day and a chocolate coated rice cracker on Fridays.
However, according to our latest consumer research, it turns out that Britain’s retiring public hasn’t been telling the whole truth and in reality, that pension pot is only one component in their retirement income portfolio. They’ve got savings under the mattress, other pensions lying around and property squirreled away – either the buy-to-let type or an unnecessarily big house to downsize out of. At last a small counter punch against the usual pension time bomb rhetoric.
It also might mean that the potential for platforms in the new long term savings era could be even greater than what we thought. To what extent will the pension freedoms attract more of those assets into one neatly organised and tax efficient space? Undoubtedly this effect will be limited by the shrinking lifetime allowance unless the new Pensions Minister forces a reversal on thinking on that.
Next week we’ll publish the second update of the Platforum UK Retirement Funding Series looking at platform drawdown pricing and functionality.
While we see some consistency with everyone offering flexi-access drawdown and a significant amount of withdrawal flexibility, we also see some differentiation particularly around provision of tools for cash flow and tax planning.
Of course there are pricing differences across the wide range of scenarios that we look at and they are accentuated on adviser platforms depending on whether models are being used with frequent rebalancing.
In D2C the dynamics are a little different with the likes of Fidelity and Hargreaves Landsdown sweeping away all of the charges other than their core platform fee. They still can’t compete with the fixed price platforms for larger portfolios at first glance but, as we’ve come to expect with platforms, it turns out that drawing comparisons is fiendishly difficult.
If the investor only holds funds on an ad valorum platform then they are unlikely to pay any transaction charges as they sell down assets to fund their retirement.
However, if they hold any shares, or they use a fixed cost platform, they will probably need to pay transaction charges to sell down their assets. So now they must decide what quantity of which assets to sell and when, which is complicated. Selling big chunks infrequently will minimise costs… but is it the best way to operate and who’s going to help out the non-advised client on this one. It’s the advice gap second front!
Among other things, we’ll be looking at opportunities and elephant traps for DIY pensions and the line between advice and guidance at the Platforum D2C Conference on 24th June. If you’ve heard that we’re full… that is NOT the case because, due to popular demand, the conference venue has changed from the Radisson Blu-Edwardian Bloomsbury to Jumeriah Carlton Tower Hotel, Knightsbridge which has loads more room. For information or to register go to our conference website: Platforum D2C Conference . We’ll look forward to seeing you and coffee is definitely provided if not rice crackers!