Paul Leandro, Partner at independent consultancy, Barnett Waddingham comments: “The fundamental problem is that people will either not retire with enough or that they’ll be too reluctant to use their retirement pot to lock in guaranteed income. We are at risk of falling into the Australian and US traps of treating it a pension as a savings pot. But, as the PPI report reveals, the US approach of forcing minimum drawdown rate from age 73 has neither been a success nor popular.
“A more accessible and data-led solution is necessary – one that enables and encourages people to make informed decisions, while giving them access to the right level of support and products that optimise retirement income. The key lies in creating a robust regulatory environment which properly supports and encourages innovation across the pension industry. This is achievable, but it does require regulators work hand-in-glove with the industry.
“Siloing product development will hobble progress and only hurt savers in the long-term. An effective ecosystem of products and services is needed to enable people to optimise retirement income.
“The UK is in an enviable position of being able to learn from others, and avoid the pitfalls and diversions experienced by bigger systems on the global stage. The ticking time bomb on retirement needs diffusing and diffusing quickly”
Claire Altman, Managing Director for Individual Retirement at Standard Life, part of Phoenix Group said: “The report highlights that despite the UK being home to the second largest pool of pension assets, we are far from being the most advanced in our thinking about accessing DC savings. When pension freedoms were introduced in the UK, the assumption was that biggest risk to people’s retirement was drawing too much income too quickly, but the report highlights that the opposite is often the case. In other jurisdictions, there is just as much emphasis on taking a minimum income as on taking a maximum income and policymakers often have a clearer idea about the requirements of different customer segments.
“While there are significant differences between pension systems globally, there are common challenges around optimising income and managing longevity risk. It is helpful to understand the approaches taken by other pension systems given the historical lack of innovation in the UK retirement income market. Looking ahead, this is something the wider industry must tackle. While rising interest rates have led to renewed interest in the value offered by a guaranteed income, solutions need to go further. Attention must now turn to providing options that combine people’s desire to optimise their income, with the flexibility to manage their pension savings, alongside the security and certainty of having essential expenditure secured through a guaranteed income.”
PPI Report on Other Countries Approach to DC Savings
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