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Pension decumulation provisions still ‘thin on the ground’

‘Technology not a barrier’ but providers need to start innovating


Four years after the introduction of the pension freedoms, platforms are still very much focused on accumulating for retirement, research by The Lang Cat shows.

Direct-to-consumer (D2C) platforms are failing to offer a wide range of decumulation functions, the research group, which was commissioned by financial services tech firm GBST, found.

The findings show a greater focus on building funds for retirement with a lack of tools allowing investors to manage those funds once they start to draw their pension.

Among the eight platforms analysed, the report found, “only two platforms offer tax efficient withdrawal tools, one offers in-house portfolios designed for drawdown and none offering solutions which combined elements of guaranteed income alongside drawdown within a single tax wrapper”.

Mike Barrett, consulting director at The Lang Cat, said: “Although a provider not having all the functionality isn’t necessarily a bad thing, we believe platforms, even those that are execution only, do have a duty of care to help their customers make sensible and long-lasting financial decisions.

“We found propositions that provide genuinely seamless routes for investors from accumulation into and beyond retirement are thin on the ground.

“Most direct platforms lack access to comprehensive software and tools to help customers with their retirement planning needs, such as understanding how much money they are likely to need in retirement or whether other assets beside their pension should contribute to future retirement income requirements.”

‘Failing to support people’

While platforms are not required to provide such tools, it is something they need to bear in mind especially following the announcement by the UK’s Financial Conduct Authority (FCA) that it is set to introduce investment pathways for adviser-less clients.

“The challenges of delivering at retirement services are not going to go away,” Barret added. “We can’t help but feel that the industry is collectively failing to give people the support it needs to make informed decisions.

“Some of the largest organisations in the D2C market are yet to offer a pension wrapper of any sort and we hope that these new propositions, and the innovations planned by the platforms in our research, will include some of the functionality needed to help people engage with their long-term finances to achieve a comfortable income in retirement.”

Accumulation/decumulation gap

Steve Owen, head of elevate platform proposition at Standard Life said: “A platform’s job is to support an adviser throughout the client’s journey through accumulation and into decumulation. Pension freedoms certainly brought into focus that advice didn’t end at retirement and, platforms are key to facilitating this across a range of tax wrappers. They have responded well  providing a range of retirement planning tools and drawdown functionality.”

However, David Simpson, head of Emea at GBST, said that while there are rapid changes in regulation and household wealth, platforms still need to catch up.

“Both advised and direct platforms should be at the forefront of delivering the flexibility advisers and investors need; but, as this report shows, there is still a significant gap between the functionality available to investors in accumulation and those entering the decumulation phase.

“We believe that the [FCA’s] investment pathways, as currently proposed, would provide limited help by over-simplifying people’s needs and actually adding further complexity for many investors.

“True innovation is customer driven and given the FCA’s own research found that 25% of consumers want more than one ‘type’ of income, we see a real need for the further development of solutions that combine both guaranteed and drawdown income in one product.

“This hybrid functionality within a single tax wrapper is already available – albeit to a limited extent – within the advised market, so technology is not a barrier, but we are yet to see such solutions in the direct market.

“With an estimated £2.4trn ($3.1trn, €2.7trn) of assets in the pensions and retirement income sector, the market opportunity is huge, yet with the final rules due this summer, the clock is ticking for providers to comply or die in terms of being at the forefront of retirement provision.”




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