Pension conference delegates predict increased individual responsibility for future retirement choices
At the NAPF (now Pension and Lifetime Savings Association) conference last week, Barnett Waddingham asked delegates what they thought what the key issue in the new retirement landscape was going forward from 2015.
Delegates made their selection by placing a Lego brick with their choice of statement from the following:
| 1. | freedoms may, in the longer term, make companies re-consider how they value providing a pension above a legal requirement |
| 2. | a sustained negative real interest rate environment will fundamentally change how we think about long-term retirement provision |
| 3. | transfers from defined benefit (DB) to defined contribution (DC) will transform the landscape and accelerate the demise of DB pension provision |
We were delighted with the large number of people that took part in our survey and the clear winner, with exactly half of the survey votes, was:
| 1. | freedoms may, in the longer term, make companies re-consider how they value providing a pension above a legal requirement |
In other words, the new ‘freedom and choice’ framework for DC retirement savings is expected to change the perceptions of many employers with regard to future retirement provision for their employees.
It therefore seems that there is a groundswell of opinion amongst retirement professionals that a fundamental shift has been put in train. The implication could be that pension provision will cease to be a paternal employer responsibility in future, and companies will instead see their contributions to employees’ retirement or lifetime savings accounts as a legal responsibility similar to National Insurance contributions.
"The new ‘freedom and choice’ framework for DC retirement savings is expected to change the perceptions of many employers with regard to future retirement provision for their employees."
As a consequence, saving for retirement will increasingly become an individual responsibility alongside other lifetime savings needs (albeit with a limited safety net in the form of the State Pension designed to keep the majority of UK pensioners above a basic living standard).
This could mean that the concept of pensions as an employee benefit, provided by companies keen to ensure that staff and their families are provided for in the years after they have finished work, may become obsolete. The replacement of tax-efficient lifetime savings would be much closer to the current model of individual savings accounts with a focus on building capital (as opposed to regular inflation-adjusted payments) and flexibility of access (as opposed to a specific purpose of retirement income).
If this is the case, then there will be a lot of work for lifetime savings product providers and advisers in the years ahead, to ensure that individuals understand their options and can be guided toward sensible and adequate retirement choices alongside their other lifetime savings choices.
It is perhaps interesting that the outcome of our survey coincided with ‘lifetime savings’ being placed alongside pensions in the future vision set out by the NAPF, now known as the Pension and Lifetime Savings Association (PLSA), as the conference organisers.
Other delegates were split between whether a sustained negative real interest rate environment will fundamentally change how we think about long-term retirement provision and whether transfers from DB to DC will transform the landscape and accelerate the demise of DB pension provision. Both of these trends could also add fuel to the shift in focus from pensions to lifetime savings.