IPE Views: Pension 'liberation'
More must be done to narrow the disparity between the UK’s richest and poorest retirement cohorts, says JP Morgan’s Benjie Fraser
Liberated yet? Defined contribution pension holders in the UK, from April, will have previously unheard-of freedom in how they can choose to use their accumulated pension funds. The government already points to the beneficial impact these changes have already had on people’s intentions as regards retirement. Given the modest size of the average pension pot, how will these changes affect how people make financial decisions?
Encouraging the mass market to become closely engaged with retirement planning brings a new set of challenges. If the new pension freedoms are to be used effectively, both guidance and advice will need to be delivered actively to the consumer, both before and throughout retirement.
Pensions and investments are only one aspect of the retirement challenge. Many people are keen to explore how other strands of well-being can be integrated into financial planning for later life. Old-age care provision, for example, is seen as fundamental to any coherent strategy for well-being in retirement. As a result of such factors, will a broad consensus emerge that endorses a full-blown national savings strategy? And, as is already practised in countries such as New Zealand, will an independent figure emerge who sits in or alongside the Cabinet as a retirement commissioner?
Given that the guidance guarantee steers clear of product recommendation, many consumers will still need to seek out regulated advice. Innovation in multi-channel, at-retirement advice is seen as one of the most exciting developments that could come out of the new pension freedoms.
The percentage of over-65 year olds participating in the UK workforce has approximately doubled over the past decade, and earned income could be a key source of improved income for older age groups in the future. But work needs to continue to narrow the disparity in wealth levels between the UK’s richest and poorest retirement cohorts.
Notwithstanding, greater life expectancy and longer working lives mean that retirement-planning solutions need to be increasingly flexible and capable of working around the different needs of the individual. In order for this liberation histoire to end well, the industry needs to ensure those on more modest incomes receive a similar level of flexibility to those already taken care of in the workplace.
Liberation but also equality?
Benjie Fraser is global pensions executive at JP Morgan Worldwide Securities Services