A Dramatic Decade For Retirement Income

Aegon’s outlook for 2015 to 2025

Only 2% of financial advisers think annuities will lead the market in a decade’s time1

Yet seven in ten people claim that a guaranteed income is still important to their retirement plans2

One in three advisers believe risk-managed funds will become the most popular income investment strategy in 2025, while one in four point to flexible guarantees1

As demand for annuities continues to fall3, new research by Aegon UK investigates which investment strategies and income propositions will rise to take pole position in the retirement income market over the next decade.

Only 2% of the 200 financial advisers involved in Aegon’s study believe annuities will still be leading the market in 2025. Taking their place, risk-managed funds are growing quickly in popularity, with one in three (34%)1 advisers believing they will overtake the traditional annuity as the leading retirement income strategy over the next ten years.

However, according to Aegon’s second Readiness Report last month, two in five people (40%)2 still say they would like a guaranteed income in retirement, with a further one in three (30%)2 likely to opt for a combination of guaranteed income and a cash lump sum. At a time when annuity sales are declining rapidly, this suggests that flexible guarantees, which provide a secure income in retirement, will rise in popularity in 2015 and beyond. Indeed over one in four (28%)1 financial advisers foresee that guaranteed investment strategies will become the top choice for providers, advisers and consumers by the time we reach 2025.

In answer to this change in consumer demand, Aegon has refined its default fund investment strategy to better suit people’s desire for a guaranteed income despite the current move away from annuities. Aegon’s new default lifestyle approach – with multi-asset investments – offers a better risk/return profile for investors who opt for drawdown or change their retirement date. As such, it better serves the needs of a ‘typical’ default investor. The strategy will be used for Aegon’s default fund and will become the primary strategy within its range of default options.

Nick Dixon, Investment Director at Aegon said:

“Advisers are ideally placed to understand the changing needs of the investor, and it’s clear that most now think some form of income drawdown or phased retirement will overtake traditional annuities before long. Flexible guarantees, risk-managed funds, and income funds are all becoming central to advisers’ toolkits as their clients look to take advantage of the new flexibilities, and with this greater flexibility the onus is now on providers to present the investment strategies that reflect this shifting landscape.

“The changes we’ve made deliver against the shifting ideals we’ve seen from consumers and we will continue evolving and innovating to ensure we offer the best retirement outcomes for advisers and their clients. The jury is out on exactly how the land will lie in 2015 and beyond, but there is a good indication that investment strategies will change to suit investor needs in the early part of 2015.”