"This is a new retirement income market in its infancy and while the regulator shouldn’t treat it with ‘kid gloves’, it should certainly do all it can to encourage its development"
The Retirement Outcomes Review was published last month and asked for stakeholder feedback on the post-pensions freedom world, in particular the role of competition in the decumulation market.
The LLA points out that, for 85% of retirees, the retirement income market is much wider than this, and suggests that as a minimum the Review needs to examine how consumers use the choices available to them from pensions, but also other accumulated wealth, to meet their retirement needs.
It believes the FCA is approaching its market study as if the old market, where retirement lifestyle is only determined by what income defined benefit pensions or annuities provide to consumers, still exists.
The LLA argues this is no longer the case and that three drivers: pension freedoms; the economic environment (particularly low interest rates); and social changes (the removal of a default retirement age, people living longer and changing attitudes to working in retirement) are combining to create a completely new retirement market that is in its infancy.
The Academy suggests that, given the majority of the UK population are not saving enough for their retirement, combined with low interest rates, there should be a regulatory understanding that many individuals will not be able to fulfil their retirement aspirations on pension savings alone.
Bob Champion, Chairman of the Later Life Academy, said: “The overriding danger with this FCA review is that it operates within constrained parameters and essentially seeks to understand and develop a market that no longer exists. This cannot simply be about pension income – the entire pension industry continues to argue that most consumers are not saving enough into their pensions, yet they treat retirement income as if they have.
“This review must look beyond pensions and in particular, cover housing wealth and how retirees intend to fund their retirement and/or cover their care needs, by accessing it. Equity release, for instance, with its guarantees for homeowners has never been so cheap and you only need to look at the growth in demand, activity and lending volume to see how it is becoming a much more accepted solution in retirement.
“There are also significant issues to tackle in terms of the ‘advice gap’. While we are fully supportive of Pension Wise, there is a huge gap between what is delivered and what most consumers actually need to provide their own retirement solutions. To our mind, it would be far better to focus on closing the advice gap, and seeking improvement in consumer outcomes, rather than chase a perfect advice model that is not available or attainable, and far too costly for the majority of the UK population.
“As we stress in our response, this is a new retirement income market in its infancy and while the regulator shouldn’t treat it with ‘kid gloves’, it should certainly do all it can to encourage its development, and not stifle what it can do for the consumer. We should not be trying to play by the ‘old rules’ in this new world.
