Yvonne Braun, Head of Savings, Retirement and Social Care, ABIThis week I spoke at an industry event on the changing pensions landscape and the challenges and opportunities it creates. The pension landscape is being transformed – hardly a week seems to go by without a new announcement or policy proposal on pensions.
This change has created a heightened interest in pensions from people of all ages, which is good news because many more people are starting to take notice of what is one of the most important policy challenges for our ageing society: to create a retirement for people which is secure, where people can thrive, not just survive.
The Budget announcement was a significant and positive reform as it has made pensions considerably more attractive: The NAPF’s Spring pension survey showed that over a quarter of consumers are now more likely to start saving, or save more into a pension, and that young people and lower income workers in particular felt more attracted to pension savings, probably due to the more flexible access announced in this year’s Budget.
The reforms were also necessary because people were not saving enough and annuities had been rendered poor value by quantitative easing and rising longevity. The pensions industry strongly welcomed these reforms, having campaigned for more flexible rules on annuities ourselves, in order to give customers access to higher lump sums and provide greater flexibility for retirement products to adapt to the need to pay for social care.
Next steps for pensions policy
The challenge now is to make the reforms work well, and this is a challenge we share with Government and regulators. In terms of the immediate policy issues, there are two halves to this – tax rules and the guidance guarantee. Product development is of course also key to making these reforms a success, and regulatory attitudes will be critical here.
In terms of the tax rules, the most recent announcement on the tax treatment of retirement income products was only made last Monday, so it is a considerable challenge to implement these reforms in time for next April which is only six months away.
We are working closely with colleagues at Treasury and HMRC to flush out all the detailed legislative questions so that we have a workable framework that can be implemented on time.
And needless to say, working through the impact of the changes on the layers of pension legislation that still shape people’s entitlements today, is a formidable undertaking. I’m pleased to say though that providers are rising to the occasion.
The second half to making the reforms work well is to make the guidance guarantee a success. When the Treasury consulted on this right after the Budget, we put together a report for them with KPMG setting out our members’ best advice on what such a service should look like, how it should be provided, and what it should cover.
We were very pleased that virtually all our proposals were adopted, including the need for a multi-channel approach to the delivery of the Guidance, and using the existing guidance infrastructure, such as The Pensions Advisory Service.
Again, lots of detail now needs to be worked through both by Government and pension providers in terms of the practical delivery of the service.
This ranges from how most effectively to point people to the Guidance Service to ensure maximum take-up, to what the Guidance output should look like, and how to hand off people to independent financial advisers or other guidance services.
We are working with Government to make sure we tackle these questions and are prepared for next April.
And we will do everything possible to ensure customers don’t just discard the guidance.
Auto-enrolment – a success story
The Budget changes are of course only one part of the pension reform agenda – auto-enrolment is the other big transformational policy. And here we are looking at an impressive success story, with 4.5 million people now auto-enrolled.
This has been coupled with further measures to introduce a new governance framework for contract-based pensions and charge control measures, all of which pension providers are implementing. Together with enrolling thousands of new pension scheme members, this adds up to a huge work programme for the industry.
But the job is not done. So far, we’ve been dealing with the larger employers - we know it will get more difficult as smaller employers start enrolling their staff.
Also, it is generally accepted that saving 8% into a pension is not enough, and it was therefore heartening to hear Steve Webb speak about auto-escalation at the Lib Dem conference.
And of course, we need a stable settlement on tax relief for pension contributions. There have been a number of proposals on this recently, and we fully agree that tax relief needs to be looked at to ensure it is deployed effectively.
Ideally though, we would want further pension changes to be made by cross-party consensus, to ensure their focus and stability.
Ultimately, a pension is a very long-term game – and this should be reflected as far as possible in the way policy is formed.
Yvonne Braun is Head of Savings, Retirement and Social Care, Association of British Insurers (ABI).