"The first year or so after the pension freedoms were introduced was mainly focused on setting up systems and enabling customers to access their pensions, but now there is more capacity to focus on product innovation."
FR: The retirement sector has seen instrumental changes over the past 12 months – how do you see the market evolving over the next year?
I expect we will see further innovation in at-retirement and through-retirement products. For many providers, the first year or so after the pension freedoms were introduced was mainly focused on setting up systems and enabling customers to access their pensions, but now there is more capacity to focus on product innovation. We face further uncertainty with the prospect of an Autumn Statement and a Budget which could bring further changes to tax relief. My best guess is that we could see further ‘salami-slicing’ of annual and lifetime allowances, but more fundamental reform cannot be ruled out. It is reasonable to assume that there will be progressively less taxpayer support for pension saving as time goes by.
FR: What are the biggest issues facing retirees in the current economic environment, and what should advisers be aware of when dealing with clients?
One risk is that individual investors who are pursuing returns in a low interest rate environment will be taken in by adverts promising high returns but playing down the associated risks. In a world of pension freedoms, advisers need to help clients to understand that what matters is the total return and that capital appreciation matters as much as income. Investors do not need to restrict themselves to those equities which pay good dividends or bonds with regular income streams but can invest in a much wider range of assets which will generate capital growth. They can then release funds for retirement by selling capital units rather than think that they can only live on the income from their investments.
FR: Do you think Brexit will mark the end of the Triple Lock on state pensions?
I would be very surprised. The triple lock was in the manifesto of all the major parties in 2015, and it would be politically risky to cut back on state pensions in response to a referendum vote where older voters reminded us of their voting power. If the fall in sterling meant a rise in inflation then the triple lock floor of 2.5% becomes much less expensive (because upratings would be at or around 2.5% in any case). In addition, it is important to see the state pension system as a whole and not just look at the triple lock. Rising state pension ages, the introduction of the flat rate state pension and the use of CPI to index state earnings-related pension rights have taken huge amounts out of the cost of the state pension system, making it more sustainable in the long-run, even with the triple lock.
FR: Do you support the introduction of a pensions dashboard and what features would you like to see offered to best support savers?
I’m a strong supporter of the pensions dashboard. A recent Royal London report highlighted the fact that other countries such as Australia, Sweden and the Netherlands are years ahead of us on this. With auto-enrolment generating a proliferation of small pots, it will be even more important for people to be able to see all their pensions in one place. The dashboard will need to strike the right balance between informing people about their pension rights and potential future pension outcomes but without steering them towards potentially simplistic solutions such as assuming they should consolidate all of their pensions in one pot.
FR: Will the government’s Lifetime ISA help or hinder savers?
The danger is that the LISA will create confusion. We already have a help-to-buy ISA to help young people buy property and we already have workplace pensions to help people save for retirement, so the LISA feels like an uneasy hybrid. In particular, it is not clear how younger workers are meant to decide between staying in their auto-enrolment pension (with tax relief and employer contribution) or a LISA (with government top up). A better solution would have been to integrate easier access into existing workplace pensions rather than create a brand new product.
FR: What is the best solution to help the WASPI women who have seen large increases in their state pension age?
It is obviously hard for anyone to have to work longer than they expected, and especially with relatively short notice. The big problem was not so much the content of the 1995 Act (which gave between 15 and 25 years’ notice of plans to equalise pension ages) but the fact that there was no effective communication plan. DWP seems to have known in the early 2000s that a large minority of women were not aware of the changes, yet does not seem to have acted on that information. It may well be that an investigation by the Parliamentary Ombudsman would be the only way to secure compensation for individual women who could show that they lost out through the failure of previous governments to notify them of these changes.
FR: If you could see one headline about retirement in 2016, what would it be?
“Public confidence in pensions grows”!
