UK needs ‘national wealth service’, says Altmann
The UK needs a National Wealth Service and “fundamental changes” in pension advice and saving products to ensure success for the retirement revolution sparked by the Budget, according to Dr Ros Altmann.
Pensions specialist Altmann’s new report, “Flexibility in Retirement – Planning for change”, which is sponsored by MetLife, shows 41 per cent of working adults do not understand retirement saving following the Budget changes but 24 per cent of working adults – equivalent to 7.3 million people – plan to start or increase pension contributions after the Budget changes.
The 54-page report highlights that working longer will be a crucial part of a social revolution to provide better later life incomes for millions of Britons.
Survey research shows that just 20 per cent of all adults are confident they are saving enough, while 71 per cent of adults would be happy to work past State Pension Age. This is promising news, as the report’s analysis shows an extra year of full-time work and a further two years part-time work could boost pension funds by 11 per cent, which can provide much better pension income.
Changes in employer attitudes are also required to facilitate this as the report highlights concerns among employers about a rise in older workers. 38 per cent of companies are worried about the impact of an increase in older workers in the workplace with 22 per cent believing it will lead to higher costs, although many already say that they value an age diverse workforce.
In order to ensure pension savers make the most of their pension savings, rather than being left to the mercy of providers, Altmann calls for the launch of a National Retirement Guidance Network from April 2015 focusing on those about to retire and then expanding into a wider National Wealth Service. This could be integrated into workplace pension auto-enrolment providing regular “financial wealth-checks” for all savers.
“To make the new freedoms work for individuals, a revolution in the provision of financial education, information and advice is required. There is a massive opportunity to be grasped by financial advisers and the industry,” she says.
Rules forcing so-called “non-advice” services to disclose charges in the same way as advisers must now do are required, with no hidden commission. In addition, a system of specialist lower cost advice for people at retirement should be introduced, with the government increasing the current GBP150 a year tax allowance for employers who provide advice in the workplace, she says.
“These regulatory changes could have a dramatic impact on the advice industry and provide greater protection for customers who would otherwise not have access to the first-class service of an adviser,” Altmann writes.
The new pension freedoms from April 2015 are likely to lead to a product innovation revolution and new solutions could include Lifetime Pension Accounts, Pension Growth Funds maturing into Pension Income Funds, alternative types of annuities and Fixed Term retirement bonds that include advanced life deferred annuities. Altman also outlines how new products that integrate long-term care funding into pensions and long-term savings could be developed, with tax incentives that would kick-start saving for social care.
Guaranteed retirement income products which protect savers against stock market falls and/or guarantee a future income for life will play a bigger role – with 60 per cent of financial advisers wanting to see more products offering guarantees on income and capital.
Many savers will still want some certainty so providers are likely to develop solutions that deliver flexibility along with increased use of capital or income guarantees, the report says.
Dominic Grinstead, managing director, MetLife UK, says: “The UK has the opportunity to create a world-leading retirement and pensions system and Ros Altmann’s report provides a blueprint for how to achieve that. The outlook for financial services is genuinely exciting and MetLife is committed to playing its part in helping potentially deliver a more prosperous later life for millions of people.”
MetLife estimates the unit-linked guarantee market is set to nearly treble to GBP4 billion a year by the end of 2015 as the Budget reforms highlight the continuing need for certainty on capital and income. It estimates the current market is worth between GBP1.2 billion and GBP1.5 billion a year.
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