The report entitled “How might the UK pensions landscape evolve to support more flexible retirements” has been jointly sponsored by the Investment Association (IA) and The People’s Pension [email pressoffice@partnership.co.uk for a copy].
Panellist, Steve Groves – CEO of Partnership which co-sponsored the research series – said:
“While it is early days for the Pension Reforms in the UK, there are some international examples that we need to consider and learn from in order to ensure that the system pays more than just lip service to its original objectives. Understanding longevity is a challenge the world over but data available from the US clearly highlights the impacts of getting this calculation wrong.
“Almost half (46%) of people in the US die with less than $10,000 in assetsI. Not necessarily because they have not saved enough but because 62% have underestimated the length of their retirementII. The US Treasury Department has recognised this and the Internal Revenue Service will now allow pension schemes to offer deferred annuities as a default investment to “protect themselves from outliving their savings”.
“Moving to Australia, you find a Government that has introduced almost compulsory retirement saving via superannuation and is now finding that not only do half of people take a lump sum but a significant proportion use it to repay debt or pay off housing costs rather than for retirement incomeIII. Again, longevity is a challenge and the recent Murray Review has recommended a pre-selected
‘Comprehensive income product in retirement – to provide peace of mind that their income will endure through retirement’. This includes an element of annuitisation to manage longevity risk.
“So with the new pension freedoms, how do we ensure that UK consumers avoid the issues faced by other countries? One potential answer is introducing a minimum income requirement – as they have done in IrelandIV. This means that while people have freedom to make choices around retirement, they will also have the peace of mind that their essential costs will be covered. Changes to the taxation system to either encourage saving or discourage unsupportable withdrawals may also need to be considered. There are many different options to explore.
“What a review of the world’s retirement regimes has shown is that no system is perfect! However, in order to make the new freedoms work, we need to ensure that we do not lose sight of the original purpose of a pension – to provide a guaranteed income in retirement. And holding that firmly at the front of our minds, we need to be brave enough to learn lessons from other countries and where necessary make adjustments to our system to ensure that the UK system is truly fit for purpose.”
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