One million pension savers face significant risks as a consequence of the new pension freedoms to be introduced in 2015 argues a new report. “Freedom and Choice in Pensions: Risks and Opportunities”, has been published today by the International Longevity Centre-UK (ILC-UK).
The report warns that unless a number of critical measures are put in place, pensioners could be worse off throughout retirement due to the new freedoms which will see the effective requirement to take an annuity abolished and pensioners able to take all their pension as cash.
The low interest rate environment, the lack of financial advice for the mass market and behavioural biases such as the underestimation of life expectancy, could result in individuals reacting to the new freedoms by blowing their pension pots on big ticket or high risk items. The report points out that individuals could unwittingly undertake high risk investment strategies including buy to let, or become the victim of scams that have appeared outside the regulatory perimeter.
To avoid this worst case scenario, and to ensure better financial resilience in retirement, the report makes a number of recommendations including:
- The development of simplified advice models to cater for the mass market.
- Effective innovation in products and services to meet changing income needs during retirement.
- Increased consumer engagement well in advance of retirement.
- One-off guidance to address behavioural biases.
- A regulatory approach that welcomes innovation but remains wary of economic and behavioural drivers of consumer risk.
Launching the paper, ILC-UK Research Fellow Ben Franklin said:
“The new pension freedoms will completely shake-up the retirement income landscape. We need to make the most of the opportunities that the new flexibilities will offer, and minimise their risks.
On the one hand, new flexibilities offer the opportunity for individuals to maximise their investment strategies to meet their changing income needs during retirement. On the other hand, without appropriate guidance and advice, the economic climate and persistent behavioural biases threaten to induce poor decisions resulting in reduced financial resilience during retirement.
With so much to be done before the new framework is in place, the real threat to success lies in the extraordinarily tight timeframe for implementation – with less than a year to go before people can take advantage of the new freedoms.”
Freedom and choice in pensions: risks and opportunities is available to download.
For more information please contact: Ben Franklin or David Sinclair at ILC-UK firstname.lastname@example.org (02073400440 or 07543646992)
Date :16 June 2014
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