The new retirement may be just a FAD

While other industries laboriously talk about their latest big phones and clever watches, the pensions industry, by contrast, is positively vibrant with news of uncrystallised fund pension lump sums and flexi-access drawdown. It’s what keeps us feeling sexy and new compared to other, boring professions.


In my last blog, I raised a question about what I believe will be a specific demand for advice in the new world of ‘flexible retirement.’ There were a lot of comments, and there was a pretty good debate.

AC/DC powering retirement is still my ‘current’ thinking.

Put simply, I predicted that there will be significant demand for advice on retirement options, but that demand may not match the expected cost of providing advice. People will pay, but not what is currently charged. And adviser charging will be the preferred method of payment.

I don’t know that I’m right, of course. Time will tell. Nor do I profess to understand the costs of providing advice better than advisers. Definitely not. But it’s ok to explore a hypothesis based upon the market demand, I think.

The recent Scottish Widows report suggests 30% of people are willing to pay for pensions advice. But of course that leaves a number who won’t, and we have yet to see – of those who will pay – how much they believe is reasonable.

Fidelity talk about the equivalence of £600 commission paid on an annuity, and how that could cover the cost of advice. Many will contest that commission was perceived differently in the eyes of the customer, but I take the point.

Harry Kerr offers some food for thought on how the market might be segmented in this article in Professional Adviser.

I followed up with my own little bit of research.

I posed the question to a conference hall chock-full of advisers at a recent event in Manchester; “does anyone believe they could provide retirement advice to clients for £400?” (this was the fairly arbitrary figure I posed in my previous blog).

No-one put their hand up.

In subsequent conversation, someone started talking about simplified advice (always a winner), another mentioned how everything could be done online, and another suggested there were significant savings to be made if the Guidance Guarantee took care of the fact-find. But most said it couldn’t be done, or that they had no appetite to explore it (fair enough).

Difficult to disagree with any of the arguments put forward. One thing that was clear is that it isn’t clear.

What is clear is that millions of people will be retiring with meagre funds of £30-£50k in the coming years – as auto enrolment beds in – and their decisions will affect their retirement in profound ways. They’ll be faced with choices including an income for life, a Lamborghini, FAD and UFPLSs.

I think the sales of the first two will be in the minority due to the commitment (put off by the need to take an irreversible insurance decision about future income needs or the motor vehicle’s insatiable thirst for petroleum, respectively).

The UFPLS abbreviations will have their place, but the tax implications for many will be unattractive, once fully understood.

I think most people will plump for the mysterious FAD acronym (Flexi-access drawdown) as an efficient means of releasing cash, at least in the first instance.

Sexy as these decisions are, however, people will probably be more conversant with big phones and clever watches. Or whatever is the latest fad.


9 thoughts on “The new retirement may be just a FAD

  • What is clear that whether you go the FAD route or (what we call) FLUMPS, somebody is going to make a lot of money out of your savings. !% of even a “meagre” £30k pot is still £300 a year, add to that all the incidental charges that surround drawdown and the small pot is a tidy little earner (so long as it isn’t spent).

    Where there is money to be made, there should be competition and where there is the potential to waste a lot of money, people will take advice.

    I don’t see this as difficult.

    Given that the stated point of a pension is to provide an income, there is an alignment of interest between those who advise, those who manage the pot and the saver “not to spend it all at once”.

    So it makes sense to make income attractive and that means more than silly acronyms, it means the pension providers coming up with really good product that does what it says on the tin,

    Pensions are never going to provide the immediate gratification of a phone, they won’t be “sexy”, but if you want to upgrade your phone you need money!

    Faced with the prospect of not having enough money (to buy phone upgrades or whatever) people will engage in how to remedy the situation,

    Assuming providers come up with good product and there is a fair choice of retirement income options, why wouldn’t people want to become “money spending experts”?

    Put in stark terms, the difference between getting the retirement income decision wrong and right could be the difference between Poundstretcher and the iphone 6.

    What makes the at retirement decision different- and why advice and guidance will be popular, is that people don’t have to wait 25 or 30 years to see whether they are right, the proof of the advice we give people at retirement is tested pretty well from day one,

    The challenge for providers and advisers is to engage people with the difference between spending it all at once, using FAD, Flumps or even transferring to CDCs- the terminology may be weak in this response, but we can translate the benefits and pitfalls of these choices In terms that people like me can understand- BECAUSE RETIREMENT IS UPON US!

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  • Why is every conversation focussed on what providers are doing or thinking ? In this brave new era there are enough ways of doing the job and being paid by clients without still hanging onto the providers coattails.

  • Henry, thanks for your comments.

    Just to be clear, my role is policy development rather than marketing. My interest here is in understanding how we – collectively – support people when they are faced with difficult retirement decisions, and how we prepare them for such decisions through engagement over time.

    I have a genuine concern that a large number of people with relatively small retirement funds will fall between the cracks in terms of support, guidance and advice. But rather than simply predict the problem, I’m keen to air some discussion to see if it can be addressed.

    On the subject of ‘flumps’ (I prefer your terminology!), I genuinely struggle to see where they provide advantages for people taking retirement benefits. Rather, I think they offer a relatively simplistic method for schemes to provide drawdown without separating pension pots into tax free and taxable segments. I have no issue with that objective, but it needs to be properly understood by those making decisions about their retirement.

    I’m genuinely interested to know if people see this differently, or if you think I’ve missed the point.

  • Jamie
    I think you are far too positive!
    The new rules are likely to be a source of confusion and frustration.
    The main reason for this is that pension providers dont have to offer them. Most pension contracts dont even offer a drawdown facility – Standard Life dont offer drawdown on most of their contracts, with clients having to transfer to another contract to be allowed to do so. Not picking on Standard Life, but it’s a good example of the reality.
    If providers arent offering drawdown voluntarily, it seems unlikely that they will add the two new options to their contracts.
    The guides at MAS and TPAS will have to confirm what options the existing pension provider offers, if they are to provide any sort of useful guidance (i.e do you have to transfer your money out if you dont want to buy an annuity). I am sure that the likes of Standard Life will be able to tell the pension guides the answers quickly and efficiently, but there are many other companies who still dont know what a Pension Input Period is, so they are going to be flummoxed when a guide asks if the existing contract offers flexi-access drawdown or UFPLS (What’s an umperlumper?).
    And the new contracts offering umperlumpers etc wont be free, will they. Standard Life are going to charge somebody to transfer their money out of their ropey old Pearl pension that doesnt offer the new options, then pay it out straight away as an umperlumper? I dont think anybody expects you to be a charity…
    … other than the Daily Mail, of course.
    Cue “pensions rip off” headlines, with government ministers trying to blame anybody they can for the mess HMRC made of the rule changes.
    It wont be long till the rules are changed, with the ABI persuading the government to go back to annuitisation (guess who profits from annuity sales – ABI members!), and investors and their advisers losing more confidence in pensions.
    We’re all doomed!

  • Philip, Phil,

    Thanks for your respective comments, all of which I take on board.

    With Labour having broadly confirmed that they won’t reverse the direction of travel, it seems likely that people will be faced with such choices, one way or another. If it goes well, people will have more choice to do the things they want to do – with whatever they have – in retirement. And for some that will be of great benefit, e.g. those simply bridging an income gap between work and the State Pension. If it goes badly, people will make uninformed choices and may live in regret.

    One thing that I hope happens is that we see a supportive – but competitive – environment emerge.

    But as you rightly point out, Philip, I’m an optimist!

  • As I was with you both in Manchester and London events and found the reaction fascinating!

    The most interesting conversation I found was at the London event.

    One adviser put their hand up and then talked about the need to simplify, automate the process and systems to deliver a service for £400.

    I was nodding so much my head nearly fell off!

    Directly after another adviser stood up and talked about the hours which go into research, factfinding and even driving up to Birmingham to see the client.

    There is still a decent market which means that this type of bespoke service will be in huge demand however let’s be clear…it won’t meet the demand of the lower earnings due to both cost and lack of scalability.

    Therefore I firmly believe the future of advice is in the high cost high touch consultancy market continuing but supported by systemised automated processes for the masses.

    What will the future look like? I’m not sure….but I can tell you one thing….I find it incredibly exciting!

    • Thanks Chris.

      The London debate was indeed very interesting. I know how to divide a room (not equally, though, with the vast majority in the ‘Jamie’s an idiot’ camp)…

      Hey ho.

      • I think you’re being a bit harsh on yourself.

        The question, although it could have been more specific, was a fair one.

        The issue is that “Advice” is perceived by most advisers I know to be full blown, complex financial planning.

        I wonder how many would have put their hand up if you asked how many could deliver a service, simplified or otherwise, for £400 a time?


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