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James Lloyd: The changing politics of pension freedom


One way of looking at politicians is as businessmen. They understand people’s wants and desires, identify a potential ‘market’ of voters and pitch a product.

The ‘Freedom and Choice’ change to DC pension taxation was just such a product. Chancellor George Osborne identified a group of ‘customers’ for the policy – DC savers resentful of the constraints around their fund – and gave them the flexibility they wanted.

Recent research from the Pensions and Lifetime Association Savings Association – entitled “Pension Freedoms: No more normal” – provides a fascinating insight into people who have already made use of the pension freedoms since April 2015, comparing them to those who haven’t.

“The actioners”, as the PLSA labels them, were more likely to have diversified pension provision and investments and higher incomes, were more likely to have second homes and displayed higher levels of financial confidence.

We could also surmise they are more likely to be Conservative voters, and more likely to respond to messages from the Government around “it’s your money” and “people should be trusted with their savings”.

The crucial point is that once this group have extracted their DC savings, they are effectively ‘satisfied customers’ of the Chancellor’s pension revolution, who then exit the market.

The groups remaining – the “investigators” and the “inactive” as the PLSA label them – present politicians with a different market for their policies. Their customer characteristics are different, as the PLSA makes clear. They have lower financial confidence, lower incomes and less financial wealth.

It follows that the policy ‘products’ they will want and the messages they respond to will also be different.

Thinking about the pension freedoms in this way provides some insight into how the politics of Freedom and Choice will evolve.

There is growing support and interest in the principle that DC pension scheme providers should have in place clear default ‘pathways of least resistance’ for mid-market savers that balance flexible access to some cash with provision of a value-for-money income, and some protection from longevity risk.

Nest, the PLSA, the TUC, Labour’s shadow pensions ministers, as well as a host of think tanks, academics and pension policy grandees have all now touted this approach, which is also the focus of pension policymakers in Australia and South Africa.

For a typical “actioner”, default decumulation models would probably be an unwelcome, patronising distraction.

But for the remaining DC customers in the pension policy market, especially those who were defaulted into pension saving through auto-enrolment, it probably looks like just the ticket. Indeed, it was through researching what their members wanted that Nest came up with its ‘retirement income blueprint’, based on a default approach.

So here’s a prediction: within two years, the Chancellor and the Work and Pensions Secretary will be talking about guaranteeing all DC savers access to a good-value, secure, flexible income as a default.

Why? Because that’s what their customers want.

James Lloyd is director at the Strategic Society Centre



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. If people want some form of collective-DC arrangement (which we all know is what Lloyd is touting though for some reason he doesn’t want to name it) then why is it only “Nest, the PLSA, the TUC, Labour’s shadow pensions ministers, as well as a host of think tanks, academics and pension policy grandees… and policymakers in Australia and South Africa” who think it’s what people want? And incidentally, could you compile a more exhaustive list of Top 10 People Whose Opinions Nobody In Britain Could Care Less About?

    Why are there no *actual* businesses piling in to make money from collective DC?

    Why does nobody post on personal investment forums saying “I’m very confused by this pension freedom business. Isn’t there anyone I can transfer my pension to who will take 2.5% of my plan every year and then use it to buy me an annuity when I’m 85 and probably past caring”? Why does nobody ask me in the pub if I know of such a thing? Because it’s a bad idea and nobody wants it. Not the “investigators” (sounds like a race of imaginary pixies that live under your floorboards, like the Borrowers), not the “activators”, nobody.

    You know it’s a non-starter when the person touting it can’t explain how it will appeal to the ABCs, or the Joe Six Packs, or the Milennials, or any of them, and has to invent a totally new species in order to argue that there is a need for this junk.

  2. Why do our policy makers keep espousing the Australian model which has failed and is now looking at bringing in compulsory annuitisation.

    • Sean,

      The Australian private pension system combines mandatory contributions for workers in the accumulation phase, with flexibility and choice as to how those savings are used in retirement, with the latter akin to the ‘freedom and choice’ regime just adopted in the UK.

      The recent Murray Inquiry in Australia has concluded that flexibility and choice at retirement is not effective as a pension policy, or value for money for the government. So, the Murray Inquiry has recommended a default scheme, whereby individuals are placed in ‘comprehensive income products’ at retirement, while retaining the option to take their money and do what they wish with it.

      It is this sort of framework that is attracting growing interest in UK pension policy debate.


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