Panellist Gavin Casey, distribution director at Aegon UK, said the heightened uncertainty in the investment environment had increased the probability of drawdown pension pots running dry from 5 per cent prior to the groundbreaking changes at retirement to 20 per cent now.
He added: “If you take the example of individuals who went into drawdown just after pension freedoms, you would be hard pressed to find anyone who has taken any sort of withdrawal who is not down 10 per cent on their original investment.”
The contentious topic of second-hand annuities was explored by the three-man panel, which also included Matthew Smith, managing director and chartered financial planner at Buckingham Gate Chartered Financial Planners, and Nick French, managing director, head of UK wealth management, Russell Investments.
Mr Smith said an annuity trade-in market posed a reputational risk to advisers and threatened to leave the financial services industry’s reputation even lower than it already is.
He said: “There could be accusations of both advisers and providers having charged a fee to sell their original annuity and then both advisers and providers charging a fee to sell it back again.
“I think in a way, the sale of an annuity, from an advice perspective, is going to be similar to a defined benefit (DB) transfer in that it is probably going to be one of those areas where in 99 per cent of cases it is almost universally going to be a bad thing to do unless insurers are going to be especially generous with their offers.”
Baroness Altmann held a different view. Responding to Mr Smith’s comments, she told Financial Adviser that a reputational risk was unlikely for advisers, adding: “We do not know who will want to sell an annuity, we do not know if it would be a wide market.
“It is an opportunity for people they have not had before. The people who probably want to sell may not have had an adviser in the first place. They may have bought a single life annuity, but now want cover for their spouse.
“Circumstances may have changed or the individual may not have needed an annuity in the first place but they did not have the option.”
Meanwhile, Mr French said that while 10 per cent of retirement income was derived from individual contribution and 30 per cent was attributed to pre-retirement pension pot growth, the lion’s share (60 per cent) was generated at retirement.
“It shows the importance of [making sure you are covered for a good] period of time and making sure that the investment strategy is right and you stick with it,” he added.
The issue of insistent clients has come to the fore following the introduction of the pension freedoms, with some clients either wanting to cash in their pension pots or trade in their generous DB pension for a defined contribution scheme.
