The pensions industry has undergone a huge amount of change over the last few years, largely thanks to the implementation of automatic enrolment and the Budget announcement opening up new flexibilities. The final freedoms will come into force in the next few months, but what else is set to grace the pensions landscape?
Well, according to research from Aegon, quite a lot. The industry could undergo even more substantial changes in the years to come, with only 2% of financial advisers surveyed thinking that annuities will lead the market in 2025. Instead, alternative income strategies are poised to take their place: risk-managed funds are growing in popularity, with 34% of advisers thinking that these will overtake the annuity as the leading retirement income strategy over the next decade.
However, consumers aren't ready to turn their back on guaranteed income just yet. Aegon's latest Readiness Report found that 40% of respondents would still like a guaranteed income in retirement, with a further 30% likely to opt for a combination of guaranteed income (or an annuity) and a cash lump sum.
Annuity sales are already declining rapidly, so the latest finding suggests that flexible guarantees, which could provide a secure income in retirement without needing to opt for an annuity, will rise in popularity in 2015 and beyond. In fact, 28% of financial advisers predict that guaranteed investment strategies will become the top choice for the industry as well as consumers by the year 2025, highlighting how quickly the market could change.
Providers are already altering their strategies and adding to their product range in response to the most recent flexibilities, and it's likely that this period of adjustment and innovation will continue. Nick Dixon, investment director at Aegon, commented: "It's clear that most [advisers] now think some form of income drawdown or phased retirement will overtake traditional annuities before long.
"Clients look to take advantage of the new flexibilities, and with this greater flexibility the onus is now on providers to present the investment strategies that reflect this shifting landscape… The jury is out on exactly how the land will lie in 2015 and beyond, but there is a good indication that investment strategies will change to suit investor needs in the early part of 2015."
The pension reforms have been designed to offer a range of benefits to consumers, most notably giving them the freedom to spend their retirement savings as they see fit. The industry will undoubtedly change further to account for this new landscape, and while this could ultimately be a positive thing for consumers, it can also be incredibly confusing. That's why getting advice is key, as that way, you'll be perfectly placed to understand the changes and maximise your retirement income – no matter what further changes could be on the cards
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