John Lawson: A different perspective on pension freedoms


Living inside our industry bubble it is easy to convince ourselves the world of pensions and retirement has been transformed. From the inside looking out we see that freedom and choice has given birth to a brave new world.

However, research we have recently undertaken has reminded me that, for many customers, our world looks the same as it always did: confusing and distant. If we are to avoid becoming (even more) alien, it is more important than ever we see our world through our customers’ eyes.

I am not denying the change our industry has experienced. The Association of British Insurers previously reported that in excess of £200m and one million hours of time had been invested in preparation for the changes. This work continues. It has also since reported savers took out over £1bn in 65,000 cash withdrawals in the first two months of the freedoms.

Our own research also found only 3 per cent of customers aged over 45 are unaware of the changes. And these changes are found to be taking place at a time of increasing customer financial wellbeing, rising incomes and greater saving.

With all this evidence – coupled with the many heated industry debates, ongoing political consultations and understandable media scrutiny – the claims of revolution can be understood. But, as mentioned, I am forced to remember the perspective held by our customers.

Many remain disconnected from our world of change. A third (29 per cent) of those aged over 45 do not know or have not thought about how much money they may need in retirement, almost a half (48 per cent) of over-55s do not believe the new freedoms will give them any advantages or affect their plans for retirement and only one third (34 per cent) of this same population are confident their finances will be fit for retirement.

The landscape may have changed around them but the thoughts and fears inside their minds remain the same.

There also continues to be a mismatch between expectation and reality. Our research found the typical over-45 expects to need an annual income of approximately £12,500 when they retire.

When we considered reported savings and an assumed state pension, however, this typical customer is likely to realise just over £10,000: an annual shortfall of approximately 20 per cent. For those holding less-than-typical levels of retirement confidence (often those on lower incomes, with lower savings and lower property equity) this shortfall can rise to 30 per cent.

The rules of our game may have changed and many of us may feel like we live in the heart of an unprecedented storm. But we are not our typical customer. For them, retirement remains a strange and foreign land.

The freedoms present a huge opportunity to offer our help and demonstrate our value but losing ourselves in internal debate will mean missing that. If we see our world through our customers’ eyes, all will be winners.

John Lawson is head of pensions policy at Aviva