“With major pensions reform now just a month from implementation, it is clear that the retirement journeys of the past will be replaced by many different journeys depending on a customer’s needs, risk appetite, and other sources of cash flow. Most players in the industry, from life & pensions companies to financial advisors to banks, have been gearing up for the inevitable changes to the long term savings model for the last year. The changes required are substantive and there is a significant amount of work to do.
“In terms of what we expect to change, the size of people’s pension pot won’t differ, but the options for what they are able to do with those pots will. The best retirement solutions will be those which have sufficient flexibility to address immediate cash flow needs, preserve capital over what could be a 30 to 40 year time horizon of retirement, and accommodate multiple sources of income, from pensions, defined benefit pay outs or property. The best propositions will include access to information and simple planning tools.
“As with any major change, information, whether delivered digitally, personally in the form of advice, or through more rigorous financial planning, will be key in ensuring people are making the right choices for their personal circumstances throughout their retirement. Currently, almost two thirds of people at retirement age have a pension pot under £30k, which they took out without any formal advice. And, approximately 85% of all defined contribution pension customers are invested in a life-style fund that automatically changes their asset allocation over time, requiring virtually no interaction between the provider and the customer.
“The move away from the formulaic annuities market is a double edged sword for consumers; on the one hand, they are not locked into a single product that, once bought, there is no going back from. On the other, there will be many more choices, which increases the potential risk. It is important that the industry gets this right if we are to be sure that people are making the best choices for managing their money over a potentially long period of retirement.”
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