Advisers ditching personal pensions for more flexible options

IFAs are losing interest in retirement savings products as more flexible alternatives become increasingly important, according to Defaqto.

Its research suggests the number of advisers who see pre-retirement savings products as their major focus has plummeted this year.

Defaqto says advisers' clients are increasingly looking at more flexible savings and investment vehicles, such as SIPPs and ISAs, while traditional personal pension products see their popularity wane.

A survey of 500 IFAs found just 37% felt pre-retirement savings were the products they advise on the most, down from 52% in 2008.

A far greater number were giving equal weight to post-retirement income products, up 45% from 33%, while 18% were now biased towards these products, up from 16%.

Defaqto says poor economic conditions and changing demographics have caused a decline in popularity for retirement savings. The increasing attractiveness of ISAs has also provided considerable competition to the traditional personal pension, it adds.

Personal pensions remain the top retirement planning product recommended by advisers, though its place is slipping, with 67% of advisers saying it was an important area in 2009, down from 72% a year ago.

SIPPs and retirement income products are the clear winners in this changing market, with the number of advisers saying they are important rising from 29% to 44%. Meanwhile, the popularity of income drawdown and annuities rose from 45% to 57%.

So-called ‘hybrid SIPPs' - offered by insurance companies and focussing on insured fund investments - have seen the most impressive uplift, with 21% of advisers saying they are an important product, compared to just 12% in 2009.

Matt Ward, wealth management consultant at Defaqto, says: "This activity no doubt remains fuelled by the amount of pension consolidation and transfer business, which is being carried out by IFAs.

"It remains to be seen whether the FSA's Thematic Review on pension transfers will have a sobering effect on this line of business during 2010."

Decumulation offerings are a high priority amongst advisers as the baby boomer generation approach retirement, with annuities seen as the second most important product behind personal pensions, while income drawdown follows close behind.

Enhanced and impaired annuities are among the most important products, according to 77% of IFAs surveyed by Defaqto. Again, income drawdown follows close behind, seen as important by 70% of advisers.

Advisers have identified the opportunities available to add value and earn fees, Defaqto says, but it believes many are struggling to reform their processes to offer a whole of market service in this space.

While retirement planning is likely to become a key area for advisers in the post-RDR world, Defaqto says changing demographics and consumer needs mean the product landscape is transforming and IFAs will need to ensure they have processes in place to adapt.