The D-day for UK pensions has arrived. On April 6th 2015, alongside the usual scramble to capture personal ISA allowances, new UK pension reforms came into force affecting arguably the most important savings vehicle. The new rules mean greater freedom for individuals regarding how they manage and draw their pension. The most significant adjustment is that from now you can take as much cash as you like from a defined contribution pension, with no obligation to buy an annuity. What do these rules mean for insurers and wealth managers?
Call centre data indicates a keen level of interest among consumers. By 3pm on 6th April, Lloyds Banking Group received between 300 and 400 calls concerning the new reforms and their implications. Some 7% of customers calling Hargreaves Landsdown on 6th April were looking to withdraw their entire pension fund, with 40% enquiring about drawdown and 17% - about lump sum withdrawals. Other providers (e.g. Scottish Widows, Standard Life, Aegon, Legal & General) also reported an increased number of calls to their retirement experts, up to three times the normal volume, as well as increased website activity and instructions.
This data confirms, as expected, that fewer people will take an annuity. However, fears of pensioners spending their funds recklessly and purchasing Lamborghinis, as suggested by Steve Webb, the UK’s Minister of State Pensions, may be unfounded.
PUBLIC SECTOR REACTIONS
Further data about the popularity of Pension Wise, an independent financial advice service launched by the government as part of the reform, indicates that consumers are concerned about taking the right course of action for their retirement. The Treasury reports that more than 750,000 people had visited the website since it launched in February 2015, with 1,400 people booking telephone guidance appointments and 380 face-to-face advice sessions. Some 64% of those who have heard of the government’s guidance service took up the offer to use Pension Wise even though the service was not widely publicised through mainstream channels such as TV.
PRIVATE SECTOR REACTIONS
The private sector has also responded with new offerings.
BestInvest has partnered with justretirementsolutions to launch a retirement planning service, At Retirement.Fidelity has also launched a retirement service and published a series of educational materials about retirement options. Fidelity’s pension planning tool asks its customers lifestyle questions based on current spending patterns rather than simply asking the question ‘do you want to draw down or purchase an annuity?’
Other D2C (direct to consumer) platforms are following suit. According to the Financial Times, Dunstan Thomas, a retirement-market software provider, is working with two D2C platforms to launch an online tool designed to deal with new pension options.
In the products space similar innovations have appeared. Providers including BlackRock, an asset manager, and Axa, an insurer, have launched retail target-date funds. Interestingly, several estate agents have been pushing out communications about investing in property, encouraging buy-to-let.
We will doubtless see more developed findings on reactions to the pension reform. What we can already be sure of is that the providers and markets that start with customer needs and provide tools and products that match will get ahead.
The recent pension reform has prompted consumers to think not only about their retirement plans but their attitudes to saving and savings goals throughout their lifetime. There is an opportunity for providers to encourage customers to consider their spending and saving, jointly across all types of savings - ISAs, property or other.
A customer-centric approach which seeks to educate and help consumers make the right savings decisions throughout their lifetime goes hand in hand with the spirit of the new pension reform. Providers that meet customer needs most effectively with regard to security, choice and guidance, AND move quickly to do this, will win out.