Savers budget is a marketing dream

The latest budget will for sure give all the Finance, Risk and Actuarial people nightmares. All the assumptions about longevity risk, cross subsidies, future roll over straight to profit. I imagine lots of pizza and beer nights ahead. A sure sign of trouble in many large offices. However, for marketing the opportunities are huge. My predictions for the future

1. Individually underwritten annuities

The competition in terms of solutions now will be vast. Enhanced annuity can deliver greater income, and provide level of certainty that many will find attractive. Expect to see this as the norm. It should have already been. You can’t get life cover at 20 without medical questionaires, yet you can buy an insurance product at 65 without so much as a “are you overweight”.

2. Rates for Annuities will improve

This is a risky one, as if less go into the annuity pot and more become underwritten there may well be less fat (or margin). However, in the long term my bet is actuaries will be advised to review their assumptions and take on a bit more risk. The competition for annuities is no longer with other annuity providers, which to a large extent could be controlled, but with other more flexible solutions.

3. Unitised Annuity

At best a niche product today, you will see much more interest in this type of solution, leading onto the next “big play”

4. Third-way products

Hailed as the new way pre 2008 these have really failed to get off the ground, largely due to the cost of the guarantees. However, if less annuity risk is being taken, then that spare capital from all the solvency II requirements will have to be used up somewhere. Expect some innovation and decent pricing coming for this area

5. Packaged Investment Solutions

Growing in popularity in the accumulation phase I see this as a huge area. Never really understood why Fund Managers not already doing this – but real incentive to do this now.

6. Non-Advised brokers – changing names and wording quickly

I think the biggest announcement was the one around all people at retirement will get access to face to face impartial guidance. Expect to see lots of pages of content re-written with impartial guidance in it.

7. Holistic Customer Centric Solutions for those in the Retirement space

One especially for Phil here. But there will be lots of blue sky thinking around how to join up all the solutions. There will be a need to help customers who opt for the guidance and not advice route. It could be great, or it could be old thinking. Whatever, expect shares in 3M to rise as the use of post-its in brainstorming sessions boom.

8. Face to face impartial guidance changed to guidance

One year and £20m later and we will end up with it being ok to have some form of conversation about the risks you will face if you take a certain route. Ton of people don’t want or merit a face to face conversation, those that do will be able to access it easier. It will introduce new risk of bias and mis-selling of the solutions from number 7. I just can’t see the adviser community having the capacity or desire to have all these conversations with people with £25k

9. Spending boom just in time for pre election economic forecast

Not only will tax coffers get a short term boost as more people take their pension assets in a oner. (remember we won’t get that future income) You will also see increased spending as the majority of those in the less than £30,000 pots will spend a chunk. This will give the growth forecast a nice turbo boost in time for elections

10. Regret

It’s been mentioned here before, but will we look back at this in 20 years time as a great innovation, or a huge mistake. Will those with poorest pots place more reliance on state as they spend too quickly? And see above point no small annuities, mean no small tax payments coming in. I think we will

Still lots for marketing guys to do in the meantime, and lots of new innovations. I just hope whatever is developed is shaped by some of the people who contribute here. What a think tank that might prove to be.

Would be great to hear what you think.

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2 thoughts on “Savers budget is a marketing dream

  • I find myself puzzled by the trade reaction to the budget given the almost universal disdain for smaller clients and the mythology that smaller clients will not pay for advice and more important perhaps the on going fact of the UK average pension pot being less than £40K.

    The other facet of human nature which seems to be ignored is that rich or poor we all share a concern of having enough money to live on until death. I cannot imagine that simply giving people the opportunity to take their pension pots less tax is going to change this survival instinct at all.

    I also wonder when someone will tell Osborne that if this set of proposals go through he is risking adding even more people to the long term care budget of UK plc.

    Nice pre election political headlines aimed at the mature voter but little else.

    Reply
    • hi Phil, thanks for comments. i’m not sure we all act on the concern of having enough money to live on, even if we share the concern. It maybe will be people are more prudent in retirement, time will tell, my gut says those that have saved will be, those that havent won’t be. But I agree re the LTC issue. A problem waiting to happen, and all the smoke and mirrors legislation and support around this will do little to stop it being an issue.

      I think it will raise tax in short term, and also spending as well. i reckon 30-40 per cent of the 320,000 retiring will take commutation route, leaving a lot of spare cash floating about. That said buying annuities with less than £30k isn’t too attracive.

      I also agree its a political budget driven by political motives, and with that I’m definitely concerned about the long term impacts. Nowhere near enough thought has been given to it.

      Reply

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