LV= weighs up stopping enhanced annuity sales

LV= is consulting with staff on a proposal to stop selling enhanced annuities and increase its focus on secure drawdown.

The insurer says the proposed move follows a review of its annuity business and reflects changes in retirees' buying habits since pension freedoms, as well as the interest rate and regulatory environment.

LV= will offer standard and enhanced annuities from other providers and will consider offering annuity solutions from potential partners through other propositions, for example its Retirement Account.

LV= retirement solutions managing director John Perks says: “In an ongoing low interest rate environment and with Solvency II capital requirements further depressing annuity rates, we no longer feel our enhanced annuities provide good value for customers.”

He says: “We believe it makes sense, therefore, for LV= to focus on a mixture of safe drawdown products, fixed term annuities, guaranteed funds, investments and equity release.”

LV= will be contacting advisers to inform them of any changes.

The FCA announced last month it is investigating a number of annuity providers amid concerns they failed to inform customers they may be entitled to a higher rate of income through an enhanced annuity.

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London & Country lines up IPO

The UK's largest independent mortgage broker London & Country has set out plans for an initial public offering.

L&C has set a deadline of December 2018 to list, but has not said which exchange it is targeting.

It has also not said how much it hopes to raise through the IPO.

The decision follows three months of consultation on options for taking the business forward, which included a potential sale after “certain expressions of interest from third parties.”

L&C will offer a minority stake in the company in the run up to a float, and is targeting development in both its online infrastructure and brand awareness.

L&C managing director Phil Cartwright says: “We see an opportunity to create significant value in the next few years.  The business is at the forefront of investment in distribution technology and is extremely well positioned to take advantage of shifting trends in the way consumers buy financial products. In combination with our qualified mortgage adviser sales force, this will deliver an unparalleled service giving customers choice about how they access our award winning, fee free mortgage advice.”

L&C described the run-up to the EU referendum as “difficult” but the firm says it is still on track to increase profits in 2016.

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MPs call on Govt to scrap triple lock

The state pension triple lock should be dropped, the work and pensions select committee of MPs has argued.

Announcing the results of its inquiry into inter-generational fairness, the committee said that while the triple lock – which has uprated the state pension by the highest of inflation, earnings or 2.5 per cent every year since 2012 – had “made a valuable contribution in increasing the relative value of the state pension”, it would cost too much to maintain.

The report reads: “Its retention would…tend to lead to state pension expenditure accounting for an ever greater share of national income. At a time when public finances are still fragile, this is unsustainable.”

It adds: “The retention of the triple lock would not be intergenerationally fair. We urge political consensus before the next general election on a new earnings link for the state pension.”

After being re-elected last year the Conservative government pledged to retain the triple lock until 2020. The policy has ardent supporters including former pensions minister Steve Webb, but has been opposed by others including the immediate former pensions minister Ros Altmann.

State pension expenditure is currently around 5.5 per cent of GDP. Without increasing the state pension age any more than is already planned, the Office for Budget Responsibility predicts this will rise to 8 per cent by the mid-2060s.

The committee recommends replacing the triple lock with an earnings linked system.

The report says: “We recommend the Government benchmark the new state pension and basic state pension at the levels relative to average full-time earnings they reach in 2020. The triple lock should then be replaced by a smoothed earnings link.”

The committee adds that indexation should still protect pensioners from the impact of inflation however.

It adds: “In periods when earnings lag behind price inflation, an above-earnings increase should be applied to protect pensioners against a reduction in the purchasing power of their state pension. Price indexation should continue when real earnings growth resumes until the state pension reverts to its benchmark proportion of average earnings. Such a mechanism would enable pensioners to continue to share in the proceeds of economic growth, protect the state pension against inflation and ensure a firm foundation for private retirement saving”

Provider reaction

AJ Bell senior analyst Tom Selby says that the future of the triple lock looks “bleak” in light of the committee's findings.

He says: “Margaret Thatcher's decision to scrap the earnings link for the state pension in 1980 was seen by many as an attack on pensioners. The triple lock has at least partly restored some of the value that was lost during that 30-year period. However, it was never meant to be a permanent measure and costs the Exchequer billions. The Government will be wary about hitting pensioners ahead of the 2020 election – and breaking its manifesto promise in the process – but beyond that the triple-lock's future looks bleak.”

However, Hargreaves Lansdown head of retirement policy Tom McPhail  notes that politicians will be way of ditching the triple lock for fear of losing votes from retirees.

He says “Politicians are chronically compromised when making any policy decisions which might be detrimental to older citizens. You only have to look at the turnout in general elections to understand why: 78 per cent of the over 65s voted, compared to just 43 per cent of the eligible under 25s. The triple lock has served an important function in bringing pensioner incomes back into line with the rest of the population.”

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Robo-advisers hit back at claims they face battle for survival

Robo-advisers have challenged a report earlier this week which argued that current robo-advice firms will be overtaken by established finance or technology brands.

In its report, analysts at asset manager Bernstein said that the “Uberisation” of asset allocation could present a threat to new firms that have entered the automated advice market.

Bernstein believes that the assets run by robo-advisers will increase significantly – a bright future for the industry as a whole – but larger platforms may overtake the current robo-advisers, particularly given low barriers to entry in to the market.

The report reads: “The robo-advice approach looks to have a rosy future, though not necessarily the current robo-advisors themselves. Barriers to entry for the actual robo part are very low we think. So this may well be exploited by more established finance (or tech) brands with a broad distribution capability.”

In the report Bernstein also questioned how threatening robo-advice is for active managers, given that the current propositions are only allocated to passive managers.

Bernstein says there is no reason why active funds could not be included in the robo offering but they do not necessarily fit with the marketing message of “low fees and simple/transparent product”.

The report says: “The robo-advisers have an incentive to make sure that overall fees are kept low by minimising the fee paid for managing the underlying assets. The inclusion of active funds could well make sense though if, for example, they were offering idiosyncratic returns not accessible by the other passive offers.”

It adds: “The most immediate issue caused by the robo advisors is that in their current form they accelerate the already relentless shift to passive investments and thus put additional pressure on active fund fees. In addition, if active funds were to be included in the robo allocations in future, presumably there would be pressure for those active funds to have substantially lower fees to make them competitive.”

Start-up fightback

Incumbent robo-advice brands have hit back at the report however.

Scalable Capital managing director Adam French says: “Bernstein's statement on the future of robo advice lacks a full understanding of how the industry has developed. While they're absolutely right that standardised products based on buy-and-hold passive investment strategies will find it difficult to compete, they have not taken into account the innovation that is taking place with regards to the investment methodology itself – replacing a simple buy-and-hold strategy with advanced, technology-enabled strategies that were previously only available to institutional investors.”

eVestor chief executive Anthony Morrow calls the report “too general” and said that history did not support the idea that incumbents are automatic winners in new markets.

General executive manager for wealth at financial services technology Iress Mark Loosmore, however, notes that the “true power of robo is when working alongside other distribution or communication channels backed by either big brand names or existing strong relationships.”

 

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Why are advisers put off by guaranteed drawdown?

Advisers remain split over the benefits of guaranteed drawdown after a report argued many are unfairly dismissing the products as too expensive or complex.

Last week's report by consultancy The Lang Cat says guaranteed drawdown products – often called unit-linked guarantees which combine drawdown with assured levels of income – faced a perception barrier amongst advisers who may overestimate the products' costs. The Lang Cat also noted that providers should communicate the advantages of guaranteed drawdown more clearly to advisers.

Speaking to Money Marketing, The Lang Cat director of communications Mark Locke says that providers can overcomplicate guaranteed drawdown when pitching it to advisers.

He says: “There's a blurring between selling and informing that's an issue in these products across the piece. It makes things complicated, and the products are complicated enough. Its asking more of the adviser than you should be asking.”

Yellowtail Financial Planning managing director Dennis Hall says though advisers should look at guaranteed drawdown products, a combination of costs and reduced drawdown income often put clients off.

Hall says: “If you are independent you have got to be looking at the whole suite just to see if there's suitability for that particular incidence and that client.

“But if you ask clients to produce their ideal product, you've got high flexibility, lots of income, and a guarantee. You can't have all three together and the guarantee tends to be the first thing to go. If they really wanted guarantees they would buy an annuity.

“In my mind I have this 1 per cent drag which is the cost of the insurance. When you talk about safe withdrawal rates hovering around 4 per cent, if you stick another 1 per cent on that it's beginning to look a lot like an annuity.”

However, Susan Hill Financial Planning founder Susan Hill says that guaranteed drawdown products are valuable solutions that many advisers do not have sufficient expertise in.

She says: “I'm not sure IFAs do understand what's going on. Unless they really work in it, specialise in the area, have all the knowledge, they don't necessarily know what it all means and the implications. I specialise and I sometimes despair with other advisers who don't really understand what clients are getting.

“We need to stop looking at one solution, and look at a number so clients get a package. Advisers do need to start looking at this carefully. If you look at providers, they are coming out with different things and get to tweak them.”

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Helena Morrissey steps down from Investment Association

Helena Morrissey will end her tenure as chair of the Investment Association next summer.

A spokesperson from the IA confirmed that Morrissey was leaving the role and a new chair would be decided “in due course”.

Morrissey, who also stepped down as chief executive of Newton Investment Management in August, had joined the organisation in 2014.

In a statement following her departure from Newton, Morrissey said that she was looking forward to continuing her role at the trade body.

Morrissey is on the UK's Financial Services Trade and Investment Board. She founded the 30% Club in 2010 and was appointed a CBE in 2012.

She was a vocal supporter of Brexit, in contrast to many asset managers who believed a vote to leave the EU would be bad for the industry.

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Tax avoidance (the fight goes on)

In recent times, we have witnessed high-profile celebrities and sports stars make the headlines for potential tax liabilities on 'failed' tax avoidance schemes. We are now used to reading about these individuals, but what about those who advise on such schemes?

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