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‘The world looks very different now’: Pensions suffer death by a thousand cuts


The pensions market continues to undergo a quiet revolution despite the lack of Budget bombshells to contend with.

State pension reform, the challenges around defined benefit schemes, and a shift away from guaranteed income in retirement have all been brought to bear in 2016.

Hargreaves Lansdown head of retirement policy Tom McPhail says: “2015 was a hugely disruptive year because of pension freedoms, and there was no single event from a pensions point of view that matches that.

“But cumulatively there were quite a lot of things going on and perhaps the overall disruption to the industry and the UK pensions system has been just as substantial.”

One of the biggest changes this year was the introduction of the new state pension in April, at a maximum flat rate of £155.65 for 2016/17. At the same time, the debate around the so-called Waspi women (Women Against State Pension Inequality) took hold, relating to women born in the 1950s who did not understand the state pension was changing.

Aegon pensions director Steven Cameron says: “At the heart of the Waspi campaign is a failure by the Government to communicate the changes in a clear and personalised way.

“The important thing is to learn from those mistakes, and be really clear in communicating anything about state pensions.

“We also need to look at individuals as individuals, and that means not just allowing them to take their private pension when it suits them but giving people some choice about how and when they take their state pension in a way that is financially neutral to the rest of the population.”


McPhail describes the new state pension as a “watershed moment”, but says the ongoing review of the state pension age being led by former CBI director general John Cridland poses further major questions on state pension reform.

He says: “That question of what is the purpose of the state pension, how and when do we pay it to people, that is pretty fundamental stuff. Communication of the state pension and the Waspi issue ties into that. We might see some significant developments on that front.”

The future for DB schemes

Cameron says the issues we have seen with high profile defined benefit schemes such as that of BHS point to a wider problem with consumers’ perception of pensions.

He says: “We’re not expecting lots of schemes to go under, but the general message is that DB pensions aren’t as safe as people thought they were. The broader issue is consumers now think pensions overall are not secure, and there’s a job to be done to highlight the big difference between DB and DC schemes.”

Deficits on DB schemes have had a knock-on effect as alongside pension freedoms and record high transfer values the appetite to transfer out of DB schemes has soared.

Cameron says: “There has been a taboo on DB to DC transfers, which is now beginning to break down. That does not mean everyone in a DB scheme should be transferring – far from it. But we shouldn’t treat it as a taboo subject, and the FCA needs to revisit what is appropriate advice on such transfers as soon as possible.”

Striking a balance

As pension freedoms have bedded in, in the public’s mind the case for buying an annuity has weakened and at the same time providers have found it more difficult to maintain a foothold in the market. Six annuity providers have pulled out of the open market since July 2014, and LV= pulled out of the enhanced annuity market in November.

McPhail says he is concerned about how savers will secure a guaranteed income in retirement in a dwindling market.

He says: “A lot of investors value guarantees and at least some sort of secure income in retirement. We’re approaching a point where the market is failing to deliver that.

“The monetary policy and low interest rates issue has been there for a while, as has Solvency II and the pressure on annuity providers’ operating costs.

“Pension freedoms have also taken a while to manifest themselves and change the flows of new business. Put them all together and the world today looks very different from two years ago.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. What I find hard to come to terms with is the constant bleating by those in Westminster that we in the UK don’t save enough. But then they curtail, hamper and disincentivise those who wish to.
    Only recently Hammond was saying how important pension saving was to the UK economy. Three little words are just not in the politician’s lexicon – “joined up thinking”.
    All they seem to concentrate on is dragooning those with little or no money to reduce even further their already meagre disposable income, while at the same time chopping the legs off serious contributors.

  2. A number of DrawDown plans have emerged of late with underlying guaranteed levels of income which are only slightly lower than the annuity that could be purchased with a fund of the same size and which lock in investment gains. Such products, though not cheap, look like they may very well replace annuities.

    • I agree that these new ‘guaranteed income products have a strong customer proposition’ but the purist in me says that the strength of an annuity are guarantees and the strength of drawdown is flexibility and investment control so it may be better to have some of each.

  3. Govt moves the state pension age to 67/68 because ‘people are living longer and working longer’ but leaves the iniquitous age 75 penalties; no PCLS if you die after 75, no tax relief on contributions after age 75 and beneficiaries are taxed if you die after age 75. How is this ‘treating the customer fairly Mr FCA?

  4. The future of pensions appears obvious; DB schemes closed to new members, personal pension policies halved over the last decade (Pension Pol Inst), average maturing PP fund value only £25k (less than one years avg Uk salary), rising low paid employment and very low paid self employment (avg £208 a week), 22% of the working population earning less than living wage making contributions unaffordable and people may be living alot longer. Uk savings rate 3.4% of income, the lowest in EU (16% in Germany)
    Pensions will be a dinosaur by the end of this century.

  5. Perhaps the most irksome thing is that on the one hand the government claims to be concerned about the number of people failing to save adequately for their retirement whilst with the other doing everything to put them off doing so. Sure, AE Schemes have been foisted onto most employers, but they might be more successful if the government had resisted the urge to impose its own framework on their structure and allowed employers just to choose a scheme for themselves, not least with integrated adviser charging as an optional extra.

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