With the appointment of Chloe Smith to Secretary of State for Work and Pensions, and a new Pensions Minister due to be announced shortly, Colin Clarke, Head of Product Policy Strategy, Workplace Savings, Legal & General, has outlined how the government can improve the state of retirement saving in the UK and build on the successes of the new Secretary of State’s predecessor. But most importantly, how it can ensure a balance is found between short term decisions that impact long-term financial wellbeing.
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We congratulate the new Secretary of State for Work and Pensions and look forward to working with her. While the cost-of-living crisis must be the priority, we are advocating the following three actions:
1. Regulated personalised guidance to close the advice gap and help savers understand their pension choices
We are urging the Government to develop a new, regulated market for personalised financial guidance. This will close the advice gap and allow firms to deliver better financial outcomes for consumers.
Due to the regulatory restrictions currently in place, pension providers cannot prompt, nudge or alert customers to options that might offer better retirement solutions for them. This is currently seen as advice. Unless fundamental reform is achieved to the legislative and regulatory framework around advice, engagement will remain low, ill-informed choices will continue to be made and people will continue to sleepwalk into retirement.
Closing the advice gap is important work at the best of times, but against the backdrop of the cost-of-living crisis, it is now critical.
2. Continuity of support for consumers to increase pension adequacy
The pensions landscape can be overwhelming to consumers; this has a direct link to engagement levels and consequently pension adequacy in retirement.
While we recognise this might not be at the top of the priority list, given the current climate, it’s important we have an action plan to implement the government’s proposed automatic enrolment reforms to give providers, employers and members a clear timeline to prepare. Auto-enrolment has been a huge success and it’s important the momentum is maintained with cross-party support.
There has been much change in Downing Street over recent years but there have been relatively good levels of political consensus when it comes to pensions and savings for retirement. So, a focus on pension adequacy initiatives like the Midlife MOT and gradual timetables for auto enrolment and the pensions dashboard should progress. Chopping and changing policy now will leave consumers more confused and overwhelmed, at a time when they need to be making informed decisions instead.
3. Democratisation of investments
DC schemes are starting to invest in productive assets that benefit the UK economy and wider society but have yet to scale to the levels needed to make a difference.
These assets have traditionally been available through private markets, but current legislation significantly limits the opportunity for DC schemes to invest at meaningful levels. We welcome the recent consultations to understand and address these limitations and call on the government to maintain the momentum and deliver a framework that makes it easier for trustees to maximise this opportunity for their members.
Against the current backdrop ‘value for money’ is crucial, but it is a broad term which needs to consider the long-term benefits for members, including net investment performance. Democratising productive finance will be key for levelling up the UK.
Colin Clarke, Head of Product Policy Strategy, Workplace Savings, Legal & General comments: The new cabinet will have a long list of priorities to work through, none greater than the current cost of living crisis. It’s therefore crucial that the new pensions minister ensures a balance is found between the short-term decisions that consumers are having to make in response to increased living costs and the need for long term financial wellbeing.
“We’re calling for the government to close the advice gap, ensure continuity of support is in place to help pension adequacy and to democratise investments. These three factors have always been important, but against the backdrop of increased living costs they are now critical to improve the state of retirement saving in the UK.”
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