Hello and welcome to Morningstar Series, Ask the Expert. I am Emma Wall and here with me
today is Simon Chinnery, Head of UK DC for JPMorgan. Hello, Simon.
Hello, good morning.
So, ever approaching all the pension reforms coming in April. As we get closer, we are
getting a little more information for investors about what post-reform pension society will
look like. What will it look like?
Well, of course, we don't know. And one of the things is that what is happening now shouldn't
really be much of an indication for the future. For instance, we know that annuity sales have
halved at least and certainly according to L&G and others that doesn't mean annuities
are dead, there is an absolute place for them. And there is more talk about people doing
drawdown, the need for income in retirement clearly is absolutely paramount. But I think
people feel great deal of uncertainty at the moment. They don't know really what to do.
Personally I think that's a huge opportunity for the advisor community to engage not just
at the point of retirement, but actually in the workplace as well.
You've mentioned that there has been some product launches. I think this is one of those
things where there is so much information out there for investors it can be very confusing.
Annuities have been tarred with the brush of evil, but I think it is important to remember
that although compulsory annuity purchase being scraped is a positive thing – because
one rule for everybody is never the right way – annuities can still set up a place
in a post-retirement world, can't they?
Yeah, I mean, I think that the reality is as we move from a DB world, a defined benefit
world to a DC world, the parts are going to be a lot smaller. DC hasn't been around in
the U.K. as you know for that many years. And so I think the need to be able pay the
bills and nothing else really has to be addressed through some level of security and the annuity
may well offer that function. We actually think that there is likely to be a mass market
of defaulters effectively in retirement who still won't know what they want to do. They
may need to continue to save, but with access to their money as well. But they're not going
to engage, they're not going to suddenly become financial experts.
At the moment annuities are the only product that absolutely guarantees an income in retirement,
but of course come April there may be a slew of other products that will be launched, that
may be suitable for individuals.
Yeah, I think again, this is a great opportunity for the advisor market to kind of cascade
down from where they are familiar, which is the high net worth end of the market towards
kind of a mass market guidance, if not individual advice. And I think the opportunity here is
that people will require income as I said before and I think the needs will be how can
I make my money last, so I don't outlive it. And that's the biggest challenge I think for
everyone in the industry. How should we manage money for these people, so that they don't
run out of money.
Well, I think one important thing is, as we look at the pension industry and pension changes
as a whole, not just looking at pension reforms but also looking at auto enrollment, there's
a lot more engagement in workplace pensions now. And I think that's an opportunity for
the industry to not just zero in on those two years out of retirement, but actually
take responsibility for the whole of the workplace savings journey.
Yeah, and I mean, it's very interesting in the U.S. that the advisor community is really
the dominant force there. And they're dominant because they moved into workplace really very
early on in a way that the investment consultants weren't involved and weren't engaged in. And
they kind of grew up with these companies and the point here is that they actually do
things like retirement readiness planning many years before somebody comes up to retirement.
And I think the advantage of that is that you have people more informed about what they're
doing and perhaps also they're actually saving more. I mean, that is the other big challenge,
of course, because we talk about what's going to happen when people retire. But the fact
is that the biggest challenge over the next five, 10 years is going to get people to save
more. So that they actually are in a position to be able to retire.
And that's good for the individual, but it also can be good for the industry because
if you have someone who gives you a helping hand along the way at 30, when it comes to
60, 65, 70 and you're looking for advice, you'll remember that person.
Absolutely. And I think and I would say to the advisor community that that it is a massive
opportunity they've got here. And the investment consulting world of the defined benefit, they're
not asleep, they are already moving into this world. So I think that, I think there is an
opportunity to help fashion the way in which product might develop in the future as well
because I think there's no point in us as an industry creating 101 variations on product,
which will just confuse as you said early, a lot of people are uncertain. What is it
that people actually want? They want income. They want some certainty. They want full certainty
by an annuity. I think that a lot of people will just fall into drawdown and fall into
something that just says, I want my money as and when and I want to invest in a tried
and trusted source.
And make sure that they are educated to be able to make those decisions.
Yeah, and I think the big challenge that we have is that for many, many years, if you
speak to any pension managers say, the biggest problem has been engagement. Certainly in
DC, well because in DB you didn't to be engaged, did you. So and I think again, you look at
how many people in company schemes in the default, 85%, 90% of people. That for us is
really the starting point to say in terms of what we're trying to do is deliver as many
people to at least a minimum income replacement. So that they are at least able to retire and
I think that the – as much as it's interesting to speculate about what will happen in the
future in the retirement space. I think we mustn't recite the fact that there is a huge
requirement for flexible dynamic management of people's assets through the time in the
workplace.
Simon, thank you very much.
Thank you.
This is Emma Wall for Morningstar. Thank you for watching.