April 2015 will represent a landmark day for pensions, with an end to the requirement to use a pensions ‘pot’ to buy an annuity. For better or for worse, people at point of retirement will hold their own futures in their hands, with decisions taken at this time having implications that can be felt for many years to come.
Age UK has welcomed greater flexibility, but it’s clear that the rapid speed of change has led to significant challenges ahead for the government and the industry, as well as – most importantly – ordinary pension savers.
Age UK recently published an independently-written report, Dashboards and Jam-jars, which looked at some of the main issues facing people with average-sized pension pots. It highlighted some of the main problems that could arise – for example paying too much tax or running out of money – and suggests what can be done to mitigate these.
However with new research from the Pensions Policy Institute showing that the majority of people simply haven’t planned for their retirement, it seems we will need to see a seismic shift in engagement in retirement decision making if there is to be a good prospect of long-term success.
Age UK is determined that disengaged savers, who often have smaller amounts of savings, get reasonable outcomes throughout their retirement. Only this can mean the reforms can be a good thing for everyone.
Achieving this will mean that the Government needs to ensure that Pension Wise, the Government’s new service to support people at retirement, is maximising its reach and providing a service that actually helps typical consumers; that the industry is developing products that offer good value for lower net worth customers; and that the regulator, the Financial Conduct Authority, does not neglect its duties to put consumers at the heart of the process.
Age UK’s eight point plan
In December 2014, we published our eight point plan for Government to help average savers get the most out of the reforms. We are calling for:
1. Tools to help people avoid running out of money or paying too much tax
2. Integrated decision making with State Pensions and other benefits
3. Quality standards for income drawdown products
4. Guidance to ensure lenders treat people with small Defined Contribution pots fairly
5. A strong lead agency to combat scams
6. A ‘second line of defence’ for those who do not take up guidance
7. Suitable defaults to reduce the risks of making poor (or no) decisions
8. A duty on Government to report regularly on the outcome of the reforms
All these are important in ensuring that typical savers do not lose out. Anything less means many people could make the wrong choices, and end up much worse off.