Blackrock have followed the heard of insurance and asset management companies to move into income drawdown. Buoyed by the increasing popularity of income drawdown since the pension freedoms came into effect on the 6th April, the major players are slowly announcing their offerings.
Blackrock, a name who’s probably unfamiliar to those outside of financial circles is actually the worlds largest asset management company. It’s the single biggest shareholder in many of the world more well know financial powerhouses. The likes of Citigroup, Bank of America and JP Morgan Chase. They have a staggering $4.77 trillion assets under management and 12,000 global employees.
In a bid to keep some of those assets in-house they have launched a ‘Retirement Income Account’ for UK savers. They have traditionally operated in mutual funds, investment funds and ETF’s, but now want a slice of the drawdown market.
Ever since George Osborne announced that ‘no one will have to buy an annuity’, previously inexperienced investors who wouldn’t have considered drawdown are now enquiring about it as the media and broadsheets enhance its viability.
Income drawdown has been around for many years but was only really considered by those with a substantial pension pot. Financial advisers usually considered this with clients holding assets of £150,000 plus. The reason being its volatility and need to ensure any movements downwards in fund value could be tolerated by its holder. The new pension reforms open up access to those with more modest pots however. Some providers are accepting drawdown funds of £20,000, Blackrock require a minimum of £50,000.
Blackrock are aiming their solution at the so called low-cost market. Those who are looking for the flexibility and access drawdown offers more than the bespoke investment choices available for a higher annual cost. Annual management of its core fund is 0.41 per cent.
They are dipping their toes in the drawdown water initially opening up availability to 300,000 members of workplace pension schemes managed by Blackrock. We expect this to be a trial period to iron out any issues to then be followed by a full D2C (direct to consumer) launch.
The move is a positive one for its workplace pension scheme members as traditionally these types of scheme don’t offer access to income drawdown. A retiree would need to move their fund to a provider offering drawdown services to take advantage of it features, likely incurring costs in the process.
Increasingly more choice in the drawdown market is healthy for competition and driving down costs. However, with no uniformed way providers charge, it’s becoming more complex to compare providers. Annuities were simple and quite black and white when comparing, the highest income offered was the best option, drawdown is a little more opaque. Those looking to enter drawdown need to prioritise costs, fund access, portfolio design, performance and usability in order to find a provider which suits them. Blackrock entering the market gives them one more option to consider.