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Is the annuity market opportunity overstated?

Is the annuity market opportunity overstated?

The reports of the annuity market’s death may be greatly exaggerated and the bulk of opportunities for wealth managers are likely to end up on the advice rather than the investment side.

News of the Budget changes, which removed the compulsion to buy an annuity, have caused widespread excitement in the world of fund and wealth management, with many anticipating a wall of money moving into actively managed drawdown-type arrangements.

However, a recent poll taken at the Personal Finance Society conference in Hamilton, Scotland, found the vast majority of its 120 delegates believed take-up of annuities will only fall by 10-20% in the long term, far short of the 50% figure that has widely been touted.

Drop-off temporary

So is there still an opportunity for wealth managers? Pamela Reid, executive director and head of Quilter Cheviot Investment Management’s Bristol office, said investors will have more options, such as keeping a Sipp for life to generate income.

However, she believes annuities will continue to be in demand with individuals attracted to the certainty of income in retirement. She believes the greater opportunity could be for those wealth management companies that have advice arms or that are planning to move into this area.

‘Investors needing to understand what their choices are can either go and pay for advice, or do some self-advice,’ Reid said. ‘It’s an opportunity for developing some services that are not that prevalent at the moment.’

However, Keith Thomson, director of investment services at Blackadders, warned the advisory aspect is a double-edged sword.

While the growing need for advice is a positive, he said, there is also the risk that wealth managers’ advisory arms get bogged down dealing with client requests, many of which might not result in payment.

‘One of the key messages coming through is that pensions will only come more to the fore as a saving vehicle than they have done in the past, and that an awful lot more people are going to need financial advice. Whether it is paid for is another matter,’ he added.

‘People really just want to understand what the effects of the changes are. To an extent, wealth managers who are involved in that market will have to gear up for that.’

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