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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.

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