Commenting on the Association of British Insurers (ABI) report 'Five years on: future-proofing the freedoms,' published today, Stephen Lowe argues that pension ‘freedom and choice' must be seen to be working for the mass market rather than just for the wealthy few before it can be judged a long-term success.
The reforms are popular but are they working? It will probably be decades before we have the full picture, when those who started taking money at the start of the new era start reaching their mid-eighties and beyond. These are early stages, but evidence such as high drawdown withdrawal rates from modest pensions does not inspire much confidence.
Wealthier individuals are the most likely to be among the winners of the policy because they can afford to take professional advice and more investment risk while sheltering pension assets from inheritance tax. It is ‘Middle Britain', those with small to medium-sized pension assets who depend on modest pension income to sustain their living standards, who are most at risk.
Clearly a policy that only works for one particular slice of the population but leaves the majority vulnerable is going to struggle to be a long-term success."
Examples from other countries who have been in this position provide evidence that poor outcomes could be either people taking too much, too soon and running out of money too early or from hoarding to ensure it lasts and living much poorer later lives as a result.
When we asked industry figures whether pension freedom had created more or less certainty for consumers, the answer was that it depends on which consumers. Nearly half (48%) thought the change had created more certainty for High Net Worths while 13% said less certainty. For Middle Britain, just 29% said more certainty and 44% said there was now less certainty.
Clearly a policy that only works for one particular slice of the population but leaves the majority vulnerable is going to struggle to be a long-term success. That is why we must do what we can to support initiatives being taken by the Financial Conduct Authority (FCA) around promoting take up of the free, independent and impartial Pension Wise, easing access to advise, controlling pension costs and putting in place default investment pathways.
Stephen Lowe is group communications director at Just Group