Annuities are dead – this is how we will replace them -CAMPBELL FLEMING

Fund chief describes the new investment products that he will introduce to give retired people a better income

Retired people are about to have more choice about how to handle their pensions 

From next April there will be no need to buy an annuity when you retire. Instead, savers will be able to withdraw the money in their pension fund and use it as they please.

Many will keep the money invested and use it to pay an income – but without buying an annuity.

We don't know how many people will turn their backs on annuities but the evidence from my home country, Australia, where annuity purchase is voluntary, suggests that only 5pc of pensioners actually buy one. It's a similar story in the US. Annuities were designed at a time of high inflation and high interest rates, conditions that no longer apply.

So what could replace them?

The reforms present an opportunity for the fund management industry to innovate and create investment products that meet the needs of this new generation of retired people. Clearly, it's imperative that we help that ensure investors understand their options, as more freedom for investors means more responsibility for fund managers.

Fundamentally, the new freedoms will allow everyone with pension savings to remain in investments that are able to generate a decent return at a time when their pension pot is at its largest and is still in a good position to achieve some growth. Those with the largest pots will be most attracted to the idea of continuing to invest in shares or bonds in order to maintain growth of their assets. Individuals with pots of up to around £40,000 are likely to use a combination of cash (with the first 25pc taken out tax free) and annuities.
Where people choose not to buy an annuity, their pension savings will need to generate a significant investment return in order to see them through retirement. Companies such as mine will be entrusted with ensuring that elderly investors' assets are appropriately preserved and growth in excess of inflation is achieved, while also ensuring that enough income is available to live on.
This is a responsibility we take extremely seriously. Personally, I am a strong believer in diversifying your investment pot, seeking returns and income sources from an appropriately balanced range of assets. While it's important that investors take on some risk in order to grow their assets, the result of too much risk can be painful at times of market volatility.
I expect to see the market for multi-asset funds flourish, with products designed to provide various combinations of capital preservation, inflation-beating real returns and income generation. Competition among asset managers will increase, which can only be a good thing for the customer.
Individuals and the industry are still coming to terms with the long-term implications of the Government's pension reforms. I support change where it increases people's financial freedom, but asset managers will need to raise their game if we are going to make this work.
As an industry, we have a duty to participate in this debate to ensure people understand and have access to the investment solutions they need in the latter phase of their life. It's a journey, not a destination – investing does not stop at retirement any more.

Culled from The Telegraph