Four out of five investment advisers are concerned that inappropriate products are being rushed to market to take advantage of changes announced in the Budget, research has found.
The survey, carried out by fund manager State Street, looked at the likely impact of relaxing regulations around how defined contribution (DC)savers take their pension pots.
Of the 70 investment advisers surveyed, 15% were “very concerned” about providers marketing unsuitable products to retirees and 64% were “slightly concerned”.
Insurance executives were even more worried about this risk: 22% said they were “very concerned” while 56% were “slightly concerned”.
The changes have already triggered a slump in annuity sales and State Street UK head of insurance solutions David Howie said the market was anticipating big inflows to drawdown products.
“As you might expect there are fairly radical changes expected,” he said. “This is an exciting chance to create new products as traditional annuities are seeing a drop in sales of about 50% and we are seeing a pretty strong move towards income drawdown.”
Investment advisers said the income drawdown market would see more innovation over the next five years.
Seven out of ten predicted an increase in product development and marketing around retirement investment and income products with capital and income guarantees.
Fewer respondents expected major developments in the annuity market in response to the Budget.
Some 43% of advisers and 47% of insurance executives predicted an increase in product development around U and J-shaped annuities that offer different incomes across the product’s lifetime.
Significant numbers of respondents (43%) said the move towards income drawdown would result in more sales in the retirement planning market.
But just over half of insurance executives (52%) and two thirds (66%) of investment advisers said profit margins would fall.
Howie said this would be felt most keenly at annuity providers where there would be increasing competition for business.
However, he added: “Potentially there could be higher margins to be made on drawdown, but from what I’ve heard from the market there is likely to be a focus on a degree of simplicity, with multi-asset and low-cost tracker funds used. These would traditionally be quite low-margin.”
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