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Ian Naismith: Knuckle down and deal with change

Last year was a year of change for pensions in the UK, with the largest employers leading the way in automatic enrolment, which is potentially the most significant initiative in pensions in a generation.

Alongside this is what has been described by many in the industry as the biggest shake-up in the advice market for decades. It remains to be seen whether the ending of commission and increased minimum qualifications for advisers under the RDR will provide the benefits of increased transparency and enhanced professionalism, without shrinking the advice market.

We might now have hoped for some stability, but 2013 brings many new changes.

First among them, is the long awaited white paper on state pension reform. The introduction of a flat-rate state pension worth £144 a week, possibly from 2017, has been widely welcomed.

However, publication of the paper seems to have brought a more general realisation that a change designed to be revenue-neutral will lead to many losers as well as winners.

The paper also fails to tackle the difficult issue of how to calculate the state pensions of those who have been contracted out. First impressions were that the treatment could be relatively generous, but there could be some surprises in the detail.

The Government is also trying to boost the capped drawdown market by increasing the maximum income to 120 per cent of the ‘GAD’ rate. When combined with the adoption of male GAD rates for both sexes and interest rates creeping up, this could significantly increase the attractiveness of capped drawdown.

We should also see further developments in the flexible drawdown market, and perhaps more guaranteed retirement products, though it may take significantly higher interest rates and reduced market volatility before they begin to look attractive for most consumers.

The changes to the annual and lifetime allowances from April 2014 may boost the individual pensions market, both from those taking advantage of the £50,000 annual allowance while it lasts and for those aiming for a lifetime allowance of over the proposed £1.25m threshold for personalised protection. Carrying forward any unused allowance may be particularly important in the next year or so.

Finally, this year there is a great emphasis on transparency and clarity. Leading providers have signed up to a new agreement on charges disclosure which will lead to much clearer presentation, largely in pounds and pence.

There is also a new industry code on presenting charges to employers, and the FSA is proposing a move to inflation-adjusted projections for pensions. All of these are potentially very beneficial, though only if presented in a way that genuinely improves understanding.

There is no sign of any let-up in the pace of change on pensions. The good news is that most of the reforms are likely to produce real benefits for consumers. Change means large amounts of work, often for little apparent commercial benefit. However, if the industry works collectively to ensure our efforts are focused on delivering the best outcome for our customers, confidence will return and profits will follow.

Ian Naismith is head of pensions market development at Scottish Widows

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Not quite sure what you are trying to say here, apart from emphasising the obvious to an audience who already gets it, but your comment about the government increasing the drawdown cap to 120% should surely read, ‘the government realising their mistake and performing another u-turn on what was an ill thought through idea!’

  2. …..”There is also a new industry code on presenting charges to employers, and the FSA is proposing a move to inflation-adjusted projections for pensions. All of these are potentially very beneficial, though only if presented in a way that genuinely improves understanding”. This was always the case. People buy the benefits of what the plan can do for them not what is on the illustration outlining the costs. Yes they need to be explained but it is hardly the be all and end all.
    I do admire Ian’s positive spin on this but there is no more clarity now than there was 2, 3, 4 or 5 years ago, never mind later this year. You only have to look at what the trade press and that political idiot Sharon Bowles say to see that there is mass confusion out there. This will always be the case as ours is very complex industry and the regulations do NOTHING to make it easier for the consumer to understand. It just extends the time it takes to explain everything to them and by the time you are half way through, it is around thatstagethat you have to microwave the coffee to warm it up again. Occasional change is usually a good thing. Lots of change is generally not so good and constant interference and change for change sake is never good.

  3. This is just not a conversation that is of interest to the vast majority of working people.

    That is, they do not earn enough, with respect to pensions and anyway, most people have realised that with the tiny amount of money they can actually save is better going into ISA’s as they enjoy flexability.

    Anyway, you guys keep chatting amongst yourselves as the pensions ship slowly sinks beneath the waves.

    PS. I agree with the think-tank that said pensions will have more or less disappeared by 2050.

  4. ‘Change means large amounts of work, often for little apparent commercial benefit.’

    That’s rather the problem isn’t it. We’ll all be out of business if we adopt that kind of strategy to running a company. So rivetting as these changes all are, the general public will in most cases be totally oblivious of them.

  5. If you look at America and the very popular 401K plans, there is a lot of flexability built-in, to enable the 401K plan-holders to be able to handle ‘life-events’ as and when they occur.

    Governments in the so-called UK fundamentally do not trust their citizens, and I suspect that why anything that is ‘Treasury approved’ is tied up in knots.

    When I started work in the late 1960’s, we heard a lot about portable pensions that moved with you as you changed jobs.

    In the original land-of-nod, we’re still waiting for portable pensions some forty years later.

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