By Martin Palmer, Head of Proposition, Corporate Benefits - Friends Life
A lot of commentators have been quick to point out that this new responsibility comes with risks, and have highlighted the fear that retirees might ‘splash the cash’ and finance a cruise or buy that Lamborghini with their pension pot. And I’m sure there will be some high profile cases in the media where that happens. But, I suspect the reality will be far less headline-friendly, as the majority of pensioners will simply use the new rules to manage their savings in the way that best provides for their retirement.
Annuities will still have a role to play – especially as life expectancy continues to rise – though I would expect the age at which many people will elect to purchase an annuity will increase. As an industry, we will have to look at our lifestyle strategies with some urgency, to ensure that the asset allocation in the years before retirement is aligned to how members are likely to take their retirement income.
In the Budget, the Government also announced changes to ISAs, namely the creation of ‘NISAs’ from 1 July. These new ISAs remove some of the restrictions of the existing ISAs and also increases the limits to £15,000 making ISAs an even more attractive savings vehicle.
One way members will be able to take advantage of these changes is through a workplace savings platform. These platforms offer employees access to a range of financial benefits and investment options – such as pensions, ISAs and investment accounts. The very concept of the platform revolves around giving members greater choice and control over their workplace savings: entirely in keeping with the spirit of the Government’s reforms.
Importantly though, a platform is not simply about online access to savings products: it also gives employees a new ability to see all of their financial benefits and manage them. It can also offer a suite of educational modules, which will help those employees using the platform to make informed decisions and understand how to maximise their tax benefits. The online financial education for members can also provide information throughout the lifetime of a plan. We see this as being increasingly important now that retirees will have more flexibility, will need further support in the run up to retirement, and potentially afterwards, if they elect not to take an annuity.
For me, this year’s Budget represents a huge opportunity for pensions to step out of the shadows. Members of pension schemes have found it difficult to get their heads around annuities in the past, and that has had a negative impact on engagement. But now the ties with annuities have been cut, pensions will appear to be more transparent, attractive savings products - offering good returns.
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