Golden age

Maturing DC plans are set to soar in the next five years. James Phillipps finds some smart advisers are working out ways to keep clients after they retire

Corporate advisers may appear to have a conveyor belt of long-term clients lined up in the occupational pension schemes that they service, but converting these individuals into clients beyond retirement remains a significant challenge.

In the past many advisers have been happy just to sell scheme members an annuity and send them on their way. But with increased longevity and the growing sophistication of the at-retirement market, individuals increasingly need advice on the ever expanding range of retirement planning options available to them.

“The days of just selling a single life annuity are long since gone,” says Alasdair Buchanan, group head of communications at Royal London. “At retirement is probably the most advice-intensive event in most people’s lives and there is a crucial role for advisers to play.”

Servicing group scheme members is a long-term game but the lifespan of a client relationship can be greatly expanded if they continue to need advice well into retirement.

Bob Perkins, a technical manager at Origen, cautions that some employers do set strict parameters covering what advice the adviser can give scheme members with some only interested in boosting take-up of their occupational arrangements.

But, through developing relationships with scheme members as soon as possible, he notes that advisers can build up a deeper level of trust and understanding of the client’s needs that can make their firm the IFA of choice for the individual over the longer term.

“It is always best to try and build the relationship with scheme members at a very early stage, which will ease you into advising them at retirement and hopefully beyond,” he says. “The relationship with the employer can be key, but one approach is to offer to come in and run regular clinics and workshops rather than them having to contact the insurance company.”

Maintaining contact is essential, he adds, pointing out that regular mailshots, where possible, and sending out pension benefit statements with their provider-sent annual statements will also help foster the relationship.

David Marlow, director of Alexander Forbes Annuity Bureau, says his firm carries out frequent worksite presentations, which are free, and supplements this with no-nonsense, easy to read literature. Both the sessions and leaflets are targeted at different segments of the workforce. For example, to new joiners they emphasise that employees are effectively giving up a free pay rise if they do not join their schemes.

However, for those approaching retirement, they focus on making the individual think about what level of income they will need in retirement and how they can best achieve the pension they need to fund their lifestyle.

“We have a very active role to play because far too many people get to retirement without the level of knowledge they need to make the right choice,” Marlow says. “There is so much choice in the market and one of our key messages is that people should not just accept the annuity offer from their pension provider because it will probably be neither the best available nor the best suited to their needs.”

Alexander Forbes is a big advocate of clients using the open market option and tries to funnel all members of the group defined contribution schemes it advises through its Annuity Bureau.

“When people see the difference in the annuity rate you can get them on the open market it builds considerable goodwill and once they are in retirement we will offer our full range of service to them, for example estate planning, equity release and long-term care funding advice,” Marlow adds.

He concedes that for scheme members with small pension pots, it is always going to be difficult to provide a wider range of options but the Annuity Bureau is open to all-comers.

One downside in turning away scheme members with small pension pots is that you they may have several other pensions squirreled away, Perkins notes. However, trawling for this business is probably only realistic for the larger volume players such as Alexander Forbes, Hargreaves Lansdown and Annuity Direct.

A much more lucrative area where the margins are far greater and value can be added by advisers is in income drawdown and third way annuities.

“The market really is opening up because until recently drawdown was probably restricted to people with pension pots of £170,000 or more, but the new third way products are really opening the market up,” says John Lawson, head of pensions policy at Standard Life.

The increased competition in this space is driving prices down and with many of the baby boomer generation taking a much more flexible approach to retirement, this is creating massive opportunities.

“For an adviser selling an annuity it becomes case closed and they earn 1.5 per cent commission,” he says. “But if they provide advice annually in the form of an investment review, they can earn fees for 15 years or more.”

For the right client, this a win-win situation as they are not locked into low-yielding assets for 30 years in an annuity, while the adviser is well remunerated for the ongoing servicing.

Identifying which clients may benefit from more flexible retirement planning strategies has never been easier with advisers able to use the ever-improving technology offered by providers to segment a scheme’s membership. (see box 2)

Scottish Life, for example, provides scheme management information that enables advisers to drill down into the membership and sort individuals by age and the size of their pension pot. This enables advisers to be pro-active and raise some of the issues to scheme members as they approach their normal retirement date.

It also provides a range of case study materials enabling advisers to show the value that they can add, which can obviously be a powerful tool for retaining clients longer-term.

Buchanan says that many people in their 50s are still repaying their mortgages and one case study Scottish Life uses shows how they can crystallise the benefits of some of their tax free cash to pay this off. This reduces the overall cost by cutting the amount of interest payable on the home loan and some or all of the money that would have been used to pay it going forward can be reinvested in a pension. This will help rebuild the overall pot and the client also benefits from tax relief on the interest payments.

“Advisers need to adapt their approach and with careful consideration show the extra value they can add to help build long-term relationships,” he says.

Adaptation is a key word in the current state of flux in the industry. Although many advisers have concerns about the introduction of personal accounts in 2012, the planned educational drives around pensions, such as money guidance, aim to build knowledge of the importance of pensions. For those willing to embrace the new developments, the rewards could be high.

Zurich Corporate Pensions has been in close contact with the Trade Unions Congress about its fledgling Pensions Champions project.

Stephen Lefley, head of corporate distribution at Zurich, says that it is talking to corporate clients who are supporting the programme about building on this and hiring ‘trusted advisers’, who would sit alongside the Pensions Champions and provide full, regulated advice but not sales to scheme members. The favoured adviser would be contracted to the employer and employees would be steered towards a panel of favoured providers to fulfil any product sales.

“People do not like feeling like they are being sold to and the trusted adviser would have full access to the scheme MI but have no vested interest in product sales,” he says.

The only real barrier to the project taking off is the fact that employers will have to foot the bill. But if the incoming personal accounts regime is really going to see employee benefits become a key battleground for employers vying to be seen as an employer of choice, this kind of innovation could be what separates the winners from the losers come 2012.



Duncan Howarth, managing director, JLT Benefit Solutions

JLT Benefit Solutions is developing longer term relationships its members of the schemes it runs through an enhanced technology offering.

Managing director Duncan Howorth points out there is a lot of money in defined contribution schemes where there is little relationship between members and their advisers after initial sign-up.

“There is a huge opportunity to re-engage with these members, rather than face the risk that the relationship dies,” he says.

Howorth sees ongoing communication with members through a portal as key to forging a long-lasting relationship.

“It has traditionally been difficult for members to get much information, let alone advice, if their pot is not big enough to justify face-to-face meetings. Until now there has been a lack of advisory products to offer them, but with the freedom to put in large contributions in the two years before retirement, and the growing complex nature of the at-retirement market, there are now real ways advisers can add value,” he says.

JLT Benefit Solutions is looking to develop a portable that will sit between the pension provider and the employee, which will give them access to information and support without giving formal advice. This will help them to understand their risk profile and give access to portfolios of funds selected for those risk profiles.

The system will offer technical services, such as e-mail prompts on performance, to keep members engaged on an ongoing basis.

The firm is also launching a new annuity service at the end of the summer.

John Lawson, Head of Pensions Policy, Standard Life

Many of the leading pensions companies provide online tools that can help corporate advisers develop group scheme members into longer-term clients in a cost-effective fashion.

Standard Life is launching a new retirement management tool next month that it estimates will halve the advisers’ workload.

The online program takes the client through the fact-find and provides a detailed report with a full audit trail.

Advisers can trial different situations, such as if the client takes an annuity, or moves into income drawdown with or without a guarantee. The tool links into Standard’s existing portfolio planning tool, which enables the adviser to build model portfolios based on the client’s risk profile and stress-test them against the different retirement options.

Users can also input their own annuity rates, taking figure from The Exchange, for example, as if the client had opted for the open market option.

John Lawson, head of pensions policy at Standard Life, says the software opens the door for advisers to more easily build more complex retirement planning strategies for clients.

“Advisers can use it on a one-on-one basis and we estimate that it will cut the advice time in half,” he says. “But it can also be used for demonstration places in larger worksite sessions where there is a commonality between the employees.”

The retirement manager tool will be demonstrated to advisers across the country when Standard kicks off a series of roadshows in August. The sessions will also focus on the Edinburgh-based insurer’s forthcoming, guaranteed income drawdown or third way annuity product, which is also being launched next month.


Stephen Lifley, Head of corporate distribution, Zurich Corporate Pensions

The Trade Unions Congress launched the Pensions Champions project last year in an effort to promote a better understanding of pensions and the need to save for retirement in the workplace.