Furthermore, the “advice gap” between the mass market and the mass affluent looks destined to widen further in a post-RDR world. This is concerning, as most of those who previously took advantage of the freedoms following the introduction of drawdown in the mid-1990s, and the more recently introduced freedoms of flexible drawdown, were in receipt of financial advice. Hence the very real concern is that some poor investment decisions will be made and unsuitable products and solutions will be sold into this nascent market.
As the new DC pension freedoms naturally play into the hands of the asset and wealth management industry, these institutions are ideally placed to provide tailored, flexible solutions which, through highly individualised asset allocations, actively manage the key risks faced by these newly empowered investors seeking positive outcomes in the post-annuities world. At the very least these solutions should, through the provision of intelligently constructed, well diversified and actively managed absolute return bond funds, diversified growth funds with specific CPI plus return targets and high yielding multi-asset income funds, offer the genuine prospect of real capital preservation, real investment returns and a real long-term income stream.
Chris Wagstaff is Head of Pensions and Investment Education at Threadneedle Investments
1 Source: Budget 2014: Pension reforms offer freedoms to savers. FT.com, 19 March 2014
2 Source: Budget 2014: Australians dismiss fear of pension profligacy. FT.com, 20 March 2014
3 Source: Budget 2014: Pensions revolution casts pall on insurers. FT.com, 20 March 2014
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