For the first time, the retail and institutional world will directly compete with each other, who will be the winners and the losers as these two previously siloed worlds compete

The new pensions freedoms take effect in April. The average man or woman on the street, if not the pensions industry, is happy about it. 

For the first time ever, retirees will be able to do more or less whatever they want with their money.

Tim Banks, managing director of asset manager AB’s pension strategies group, suggests this could have a major impact on the industry. “When consumers can take all their money as cash; we are living in a retail world and we should call people consumers,” he says, “and for workplace pension schemes it has big implications.”

Two worlds collide


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Now that people no longer have to buy an annuity, there will be more competition at the decumulation stage of the retirement journey, but the changes don’t end there. With many in the industry talking about ‘pensions bank accounts’, pensions will also have to stand up against other savings vehicles, such as ISAs, at the accumulation stage too.

Whether a consumer is saving for retirement, tax planning or getting their affairs in order for the next generation, they will be stacking up retail and institutional products against one another to get the very best deal.

Winners and losers

For consumers and many providers, competition is no bad thing. Certainly we can’t expect a massive outflow from the pensions industry in the accumulation phase. The advent of auto-enrolment, changes to inheritance tax rules, employer contributions and low costs are likely to ensure that workplace pensions remain popular.

Mike Spink, a defined contribution consultant at advisory firm Spence & Partners, believes that cost is critical. “The issue is if you want to use some kind of retail product for pension purposes then clearly the charges are going to be higher than they were when you were in your trust-based scheme.”

Nathan Long, head of corporate pension research at investment platform Hargreaves Lansdown,disagrees. He believes that retail products could have an advantage when it comes to consolidating small pots from previous jobs.

“That’s where the retail world adds value because you can consolidate, manage your pension, look to reduce risk as you near retirement, look to selectively take benefits.”

However, Maria Nazarova-Doyle an investment consultant at JLT Employee Benefits, argues too much choice could prove overwhelming.

She says: “A rational pension investor should be able to see that with lower fees, better governance and tax advantages there are more benefits to enjoy in the institutional world.

“Granted, the retail world has a lot more choice to offer, however, too much choice could also be confusing, especially for less sophisticated investors, so I would expect them to value a safety net that institutional pensions offer.”

At the decumulation stage, the picture is even less pretty. Despite 6 April approaching fast, very few providers or asset managers have come up with new drawdown solutions to allow customers access to the freedoms.

Spink argues that this is more of a problem at the scheme level. “BlackRock and others are already putting products together… but unfortunately for the asset managers it doesn’t seem as if too many trustees want to play ball.”

Long explains: “I think the problem is there’s not the appetite to offer new drawdown products from a lot of trust-based DC schemes.

“I think the reason for that is that as trustees they then continually have that obligation to look after all of those members in the decumulation world as well, which currently they don’t do. Having to manage that in retirement I should imagine is pretty terrifying for a lot of trustees.”

Nigel Aston, European head of DC at asset manager State Street Global Advisors, also thinks the problem is on the provider side.

He says: “The asset management industry has been falling over itself to devise new products and that’s relatively the more simple part of the equation. It’s yes, we can build great investment products… the question is where can people access them?”

A lack of freedom and choice

Regardless of who is at fault, the issue remains the same. Many consumers won’t find the level of freedom and choice they have been promised by the government from their existing workplace scheme.

Richard Butcher, managing director of independent trustee firm PTL, suggests this could leave us in a dire situation.

“Come April I think we’re going to have a train crash, because people are going to be demanding cash because they’re entitled to do so, and the industry is going to say: ‘Well, the trouble is we don’t know what to do because they haven’t finished putting the regulations together’.”

At the very least, this could lead to an outflow of money to retail providers that are freedom-ready and already have diverse drawdown products available. At worst, it may cause a backlash from consumers who feel they are being shortchanged by their existing schemes.

Banks agrees. He says: “What we hear a lot from plan sponsors, from trustees is: ‘I’m in no hurry to change the way in which we do things, and we’ve only got 10, 20 retirements next year’. That to me seems to be missing the point. These are individual outcomes. It really matters to Mr Jones, who will be taking and accessing their savings from next year.

“If we’re not careful and if the market doesn’t react a bit quicker it does risk being categorised by the politicians as a market failure.”