31 Aug 2017 - Estimated reading time: 2 minutes
Being able to use a Master Trust as a drawdown vehicle is something which is offered by an increasing number of providers. Received wisdom tells us that it offers a multifaceted decumulation solution but, for now, I’m reserving judgment.
The rhetoric is that the Master Trust offers ongoing Trustee stewardship and oversight, individuals benefit from economies of scale and there’s opportunity for that seamless transition from accumulation into decumulation. That slide into decumulation, more often than not, takes place on a non-advised basis and offers an attractive path of least resistance - an easy solution for individuals who know what they want to do, are comfortable with doing it themselves and don’t have particularly complex needs or circumstances.
But whilst some are happy to fly solo, some aren’t and there are also those who would benefit from advice and a different approach.
I can’t help but think back to what life was like pre the dawn of freedom and choice, when we all thought drawdown was tricky and that everyone should take advice. Pension providers were reluctant to let anyone go it alone, without advice, but that seems to have largely been forgotten about. Granted the landscape has changed but the same principles and complexities exist - the same “risk of ruin” issues prevail, as does the question of recognising and managing reduced cognition. Then there’s the fact that we’re all living longer than we think we will, albeit not always in the best of health. From what I’ve seen when assessing propositions, there are compromises to be had and they offer a less sophisticated solution in comparison to some individual drawdown counterparts.
It’s for these reasons that I’m not wholly convinced that, at the moment, Master Trusts always offer the best decumulation solution for those who are looking to “drawdown” in the truest sense.
I don’t believe that making full advice mandatory is the right answer - it’s about support and education, equipping individuals so that they’re able to traverse the new landscape having made informed choices. Increasingly, there’s an expectation that this is something delivered within the workplace, that our employers will facilitate this and that it’s broader than pensions and supports overall financial wellbeing.
The market is crying out for product innovation in decumulation and directive investment strategies as we see in accumulation - in retirement defaults which offer the right mix of high yield / low volatility with a link to prospective longevity, targeting an optimal “annuitisation age” and with consideration to cognitive decline.
Two and half years on and very few would argue that there’s still much to be done in the post-retirement market. The market is clearly still very much in its infancy and a lack of innovation is often cited and debated. But I’m confident things will change over time, as the prevalence of DB diminishes, demand increases and the shape of retirement changes.