Fidelity launches consumer retirement guidance website
Fidelity Worldwide Investment has launched an online Retirement Service aimed at individuals looking for guidance and advice on how to convert their pension into an income for life.
It says around 150,000 retirees are "likely to be in limbo" following the government's pensions proposals for 2015, announced in the March Budget.
Under the proposals, retirees will have far more flexibility with their pension, including no longer having to purchase an annuity. Instead they will be free to take their funds as a lump sum, use income drawdown or go down the annuity route. Or a mixture of the above.
It means around 300,000 people a year with defined contribution pensions will have a wider range of choice over how to obtain an income in retirement, something Fidelity believes has already led to much confusion – as the new rules don't kick in until April 2015.
This confusion is behind a near-50% collapse in annuity sales between March and the end of June 2014, it said.
Fidelity has therefore moved quickly to become one of the first financial services providers to factor-in the government's proposals, creating a "holistic" service that will offer guidance and/or advice, followed by the transactional capability for people to invest their pension for income drawdown, take an annuity or realise some cash.
Be in control
"The service will also factor in people's debt and family situation before looking at how to achieve their basic, minimum level of income," said Richard Parkin, head of retirement at Fidelity. It will help people to defer their State pension, should it make sense to do so.
"We want people to be in control of their retirement, because retirement has always been something that just happens to you," Parkin explained. "It's about looking at all of a customer's choices, including paying down debt. People need help right now – that's why we're not waiting for the rule changes to kick-in or even for greater clarification. There's a lot of opportunities for people, but they'll need help."
While the government has proposed a mandatory "guidance guarantee" that, from next April, will ensure everyone receives some kind of guidance over what to do with their pension (to be delivered by The Pensions Advisory Service and the Money Advice Service), Fidelity believes people will still require greater guidance and advice, along with the need to actually purchase a retirement product.
"Many people are confused about their options and the significant drop in annuity purchases since March shows us that around 150,000 of those heading into retirement now, and who were about to buy an annuity this year, are in limbo," said James Burton, UK managing director of Fidelity.
Fidelity, which bought Annuity Direct in February 2014, says annuity sales have fallen from around 60% of customers purchasing an annuity to around 35% since chancellor George Osborne's March Budget announcement.
The Fidelity Retirement Service website – at fidelity.co.uk/retirement – offers a guidance and education section, retirement income planning tools as well as a "Safety Net" service where Fidelity will review the retirement choices of its customers to ensure they are not making an "irreversible mistake" that could see them lose out financially in retirement.
"In the first six months of this year, we've had to call about 47% of our customers to tell them that they could potentially be making a mistake with their choices," explained Parkin. "And 28% then decide to change their mind after that call."
The Retirement Service also offers a tailored list of income-based funds that could be suited to retirees looking to leave some or all of their pension invested – the funds will be drawn from the entire fund universe and not just Fidelity funds.
Guidance will be offered free, whether you have used the TPAS service or not, but when customers "tip over into advice" they will face charges, on top of any charges for product purchases.
"We want people to get to the place that's right for them, even if that means recommending non-Fidelity products," added Alan Higham, retirement director. He said the average charge for the full retirement service, including advice, would be around £2,500, though this will be "much smaller" for people with more simple cases (and smaller pension pots).
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.