Assets in retirement investment solutions, which have amassed a negligible amount in the decade since the introduction of Pension Freedoms, are on the cusp of a significant growth spurt, according to a new report by NextWealth.
NextWealth bases its prediction on the findings from its Retirement Investment Solutions report, which provides evidenced-based insights into how advisers are combining investments for clients in retirement.
It also profiles and compares the investment solutions launched specifically for clients in retirement or decumulation.
As the first cohort of pension freedom retirees reaches 75, the findings show there is a growing imperative for innovation which has up until now been dominated by Royal London’s governed retirement income portfolios (GRIPs).
Remove GRIPs and assets held in solutions specifically designed for decumulation sit at a little over £1bn.
This represents a tiny fraction of the advised DC retirement market, which runs to hundreds of billions of pounds.
However, the NextWealth findings show that as more clients move from accumulation to drawdown, and as regulation reinforces the need for sustainable income planning, there is room for providers to define this emerging category.
“Those who offer simple, competitively priced multi-asset solutions or MPS ranges – aligned to risk profiles, easy to implement across wrappers, and backed by strong adviser service – are well placed to capture assets as advisers modernise their retirement propositions,” says Heather Hopkins, managing director at NextWealth.
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The NextWealth findings show that advisers are looking for solutions which are built to flex and evolve as client needs change.
Hopkins added: “Advisers and clients don’t simply ‘buy’ a multi-asset fund or a model portfolio; they hire it to do a job – to deliver sustainable income, manage sequencing risk or volatility, free the adviser’s time or give clients confidence in their retirement spending.
“Defining that job is key to designing solutions that meet advisers’ needs for flexibility enabling them to best support client through several life stages in retirement.”
NextWealth argues that the narrative needs to be reframed away from pot size to focus on the job the investment solution has been hired to do.
The Retirement Investment Solutions Report findings show product providers are taking different approaches to supporting the various jobs to be done. Some are offering an end to end solution, while others are looking to do one job.
Of paramount importance, said Hopkins, is that providers consider how their solution will be blended with others:
“Providers need to think about the adviser workflow to understand how this will tie into risk profiling, cashflow modelling, platform choice, reporting, etc,” she said.
“They need to think about how secure income might be blended with growth portfolios and how that will shift over time as the client passes through various life stages.
“The job that clients will hire investment solutions to do may change through retirement. And this need for flexibility alongside certainty came through in our adviser survey and provider interviews.
“The most important feature of income generating products, according to advisers, is flexibility to adjust income withdrawals.”
Hopkins added: “We know that providers are optimistic about future growth.
“The market today may still be nascent 10 years after the introduction of pension freedoms, but it is finally primed for expansion.
“For providers willing to invest in flexibility, platform reach and clear adviser support, retirement investment solutions represent a meaningful growth opportunity in the next decade.”
