16Jun14 - Retirement Income: Risks and Opportunities
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Transcript of 16Jun14 - Retirement Income: Risks and Opportunities
Retirement Income: Risks and Opportunities
Monday 16th June 2014
This event is kindly supported by Prudential#risksandopportunities
Welcome
Josephine CumboPensions Correspondent
Financial Times
This event is kindly supported by Prudential#risksandopportunities
Tim FassamHead of Public Affairs
Prudential
This event is kindly supported by Prudential#risksandopportunities
Ben FranklinResearch Fellow
ILC-UK
This event is kindly supported by Prudential#risksandopportunities
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Freedom and choice in pensions
Risks and opportunities
Ben Franklin, International Longevity Centre – UK
@ilcuk
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
What am I going to cover?
What are the reforms?
What are the key factors likely to drive decision making and their associated risks?
Economic context.
Products and advice.
Personal/household behaviours and characteristics.
Legislative agenda and regulatory oversight.
Summarising the risks and opportunities.
What key measures are needed to ensure success?
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
What are the new freedoms?
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
The old tax system
Source: HM Treasury
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Where have all the boxes gone? The new tax system...to be implemented in April 2015
Source: HM Treasury
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Key factors likely to drive decision making and their associated risks
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
The economic context…lower for longer
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Hoping for a significant reversal in monetary policy any time soon is like clutching at straws
Recoveries from various recessions
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Implications for consumers…
The search for yield will shape decision making.
Could result in savers channelling pension wealth into unconventional products.
Lead to exposures on Buy to Let? Equity markets?
Or, alternatively, individuals could opt for big ticket items.
Many will also use pension savings to pay down debt.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Debt will remain a key part of the picture
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Products and advice
Potential for innovation in products:
Drawdown for mass market.
U shaped annuites.
Property.
Other products…
But…increased choice will mean consumer engagement and advice critical…
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
A quick word on property
Safe as houses? Inflation adjusted house prices can take time to regain losses in value
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
The need for advice…
One-off guidance could leave people with more questions than before.
The “advice gap” – only around 30% of population has ever taken financial advice (source: CII)
Typically high net worth individuals
But what about the rest of us?
Need a mass market solution…
Otherwise risk of poor consumer decisions and apathy in face of complexity.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
The advice gap
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Personal behaviours and characteristics
Immediate rewards are hard to resist.
People consistently underestimate their life expectancy.
Low levels of financial literacy.
Tendency to buy low sell high.
All could result in sub-optimal decisions and underline
need for guidance and advice.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Underestimation of life expectancy
Average individual life expectancy
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Legislative agenda and regulatory oversight
Both will continue to shape the landscape for
retirement.
Issues about coordination between FCA and TPR.
Possible differences between the legislative
agenda and the regulatory one.
Timeframes to prepare for the new freedoms are
tight.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Summarising the risks and opportunities
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Summarising the risks and opportunitiesOpportunities:
Reforms result in consumers better able to meet changing income needs throughout retirement:
Consumers can optimise investment strategies.
Room for innovation in financial products to meet consumer needs.
Opportunity to create advice models for the mass market.
Consumer risks:
Reforms result in consumers having less income in retirement. This could be because:
Consumers unwittingly becoming exposed to high risk investments and products.
Consumers decide to spend it all today.
Consumers are apathetic in the face of complexity and do nothing.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
What needs to be done to maximise the opportunities?
Effective innovation in products and services.
Increased consumer engagement in advance of
retirement.
Guidance to address behavioural biases.
Advice models for the mass market.
Regulatory approach to welcome innovation but
wary of the economic and behavioural risk drivers.
The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change.
Many thanks
Ben Franklin
Research Fellow
International Longevity Centre - UK
0207 340 0440
Twitter: @ilcuk
Dean MirfinGroup Director
Key Retirement Solutions
This event is kindly supported by Prudential#risksandopportunities
Andrew TullyPensions Technical Director
MGM Advantage
This event is kindly supported by Prudential#risksandopportunities
Tom BoardmanDeputy Chair
NEST
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Discussion and Q&A
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Jane VassHead of Public Policy
Age UK
This event is kindly supported by Prudential#risksandopportunities
Michelle CracknellChief Executive
The Pensions Advisory Service (TPAS)
This event is kindly supported by Prudential#risksandopportunities
Discussion and Q&A
This event is kindly supported by Prudential#risksandopportunities
Retirement Income: Risks and Opportunities
Monday 16th June 2014
This event is kindly supported by Prudential#risksandopportunities