Mellor made the comments following the UK Chancellor’s announcement on UK Budget Day that savers would no longer be compelled to purchase annuities upon retirement.
“As much as this is a business challenge for insurers, asset managers have had the door opened to significant potential asset inflows and it is critical they capitalise upon this. It will be interesting to see how this might involve products which offer a predictable rate of return but with limited risk to capital.
“Strategy will be driven by the type of new products that come about and asset managers will have to develop propositions for customers that reflect the anticipated needs of future potential buyers. Infrastructure assets would represent a good opportunity here, given their relative high yield and long duration, but there would be operational questions to answer first.”
Transparency on fees and costs will also be important, Mellor added. “Individuals will be able to make more decisions about their retirement benefits and will seek to compare and contrast across the market, without the opaqueness that is a current feature of costs within an annuity. Exchange traded funds providers who are already set up to offer a low cost product have an advantage at the moment, other managers will need to catch up fast.”
PwC thinks the real winners will be those managers who can successfully integrate a varied range of funds for pensions savers with different options for drawdown, annuitisation and reinvestment of lump sums, making a complex process as easy as possible administratively whilst ensuring the consumer is getting the most appropriate product.