A couple of weeks ago I had the pleasure of speaking at the Marketforce 'Future of Life and Pensions' conference, where the new pension freedoms dominated the agenda. This was closely followed by a Pensions Network event where, once more, this was the hot topic, with particularly good presentations from Steve Groves and Adrian Boulding on product choices and options.
What was noticeable was the consensus that pension freedoms impacts most on the middle market. High net worth customers already had investment flexibility and rarely annuitised, while those with smaller pots will either take cash through trivial commutation or purchase a small annuity to supplement their state pension.
The majority of middle-market pension savings will be through the workplace. Many people will retire gradually rather than have the traditional 'cliff-edge experience' of working full-time one day then being retired the next. To me, it is the workplace focus and overlapping of savings and income that is the biggest change.
It is in the workplace environment where we see most of the challenges. Legacy technology is restricting the ability of many providers to offer scheme members access to full freedoms; even those that do often require a transfer to another product on another administration platform.
Trustees and governance committees have been surprisingly reticent to react, despite being responsible for ensuring 'good member outcomes' in retirement. It might have been expected that they would demand much more for their scheme members rather than accepting partial offerings. It seems to me that concerns about being involved in a process which touches on 'advice' is too risky to contemplate. Instead, members are told 'if you want flexibility, then you will need to transfer all your money elsewhere'.
Our industry has much to do to make pension freedoms a success and recent negative press coverage has accelerated the need to act. Both the conferences I attended did a fantastic job of highlighting the many challenges of providing affordable consumer guidance and exploring the product requirements of the future. Most argued that the products the consumer needs are already available and that we should keep them simple. The challenge is offering a customer the ideal mix – cash, guaranteed income, variable income and ongoing savings growth – that will suit their needs for life.
There is a lot more the industry can do to deliver good consumer outcomes. Here's my checklist:
> Major traditional life companies – the time has surely arrived to sort out your legacy systems.
> Trustees – step up to the mark, and ensure your scheme members have full access to pension freedoms within your schemes. Don't force your members to move away.
> Support the guidance process by pushing for more rapid development of a UK wide pensions register. How can guidance or advice be given without a consumer having clarity on their total savings?
> Integrate housing equity much more closely into the retirement mix. For many, their house is their biggest asset. Equity release needs to be a core product in retirement. It should be incorporated into planning tools and supported within retirement income administration solutions.
> Focus product innovation on protecting the consumer against making poor decisions, for example, develop deferred annuity-style products that protect a consumer against exceeding their expected mortality. As many presenters indicated, if consumers plan for income to last for the average mortality, half will run out of money!