A pensions reform in the UK would lead to major changes and a greater diversity of products, but won’t completely displace annuities, according to research by Northern Trust and independent forecasting centre CREATE-Research.
The research outlined five major changes that are likely from eliminating mandatory annuitisation in the UK, stating that diversified income funds are likely to be immediate beneficiaries, and that exchange traded funds will also benefit as the focus shifts towards the impact of fees on retirement balances.
According to the report, defined benefit plan participants will end up migrating to defined contribution funds, and this movement of money will encourage the development of new funds.
It predicted a change in competitive dynamics between insurance companies and asset managers, as insurers evolve to offer additional blended services such as annuity with healthcare, life insurance or disability benefits.
The role of advisors could also change as customised advice will be available to clients with higher savings, and embedded advice will be more common for lower-balance funds.
Penelope Biggs, head of the Northern Trust institutional investor group for Europe, the Middle East and Africa, said: “The reform of the UK pensions market is likely to radically alter the retirement industry as a whole.”
“This will result in true innovation and a greater diversity of products from institutions, and more choice for individuals – the impact will be felt across almost the entire population of the UK.”
Amin Rajan, CEO of Create-Research, said: “These changes are the most ambitious in living memory and represent a major transformation of the UK pension market.”
He added: “Investors will, as a result of the changes, have greater choices in retirement planning, selecting annuities, savings or other investments, but also greater individual risk, raising fresh concerns around the quality of advice and levels of financial literacy across the country.”
