Future pensions innovations – it’s retirement income, but not as we know it

As highlighted in my previous blog, there has been a lot of comment regarding potential product innovation in the field of pensions and those savers reaching retirement.

 

What is clear is that while annuities are far from dead and buried, it is very unlikely that the traditional “one size fits all” annuity will be as prevalent, as the majority of people are likely to want their pension income to be able to adapt to their individual circumstance, health and their changing lifestyle in retirement. For example, it has been suggested that annuities could be designed to offer smaller payments initially while other sources of income continue and then increase later in life as Care is required. Similarly, many are considering the design of an annuity that could provide a higher level of income initially to suit additional costs of, say, holidays, family, homes, entertainment etc., and decrease later in life when one tends to stay at home, possibly increasing again when Care is required.

 

Along a similar vein, there could be certain annuity products that are specifically designed to consider payments for Care costs, which could address the coming social issue for which Government and individuals are not fully prepared.

 

A concept inspired by US pensioners is a pension income product you might purchase at retirement that doesn’t provide any income for, say 20 or 25 years, at which point the payments can be significantly accelerated. This could make both the early and later stages of retirement planning easier. A product like this could work extremely well with pension drawdown, which will still be available and work well for many when they reach retirement.

 

So, there are likely to be some very exciting changes in the world of retirement income options over the coming years. There remains the question of the cost of these solutions, especially in the formative years of these innovations when there is likely to be less competition. What is clear is that savers are likely to only benefit from the opportunities they bring if they take structured and impartial financial advice, and take the time with their financial planner to put the right solution in to place.

Duncan Wilson

Private Client Partner

Telephone: +44 (0)20 7893 3456

Email:  getintouch [@] broadstoneltd.co.uk