One of the biggest changes facing pensions over the coming decade is likely to be the growing number of women entering the market and looking for advice on the way through the pension maze.
This will be the result both of socio-economic changes and pension policy and the Labour Government has been in the driving seat on both counts.
Over the next decade, the number of people living to 100 can be expected to double and the proportion aged over 60 will increase to a quarter. Many people can expect to spend more time in retirement than they do working. The changes in job security are well documented – less predictable will be the impact that the current recession has on pensions.
Behind these figures is the greater longevity of women, their increased participation in paid employment and their shift, especially in the recent recession from full-time to part-time work. However, women have historically missed out on pensions and research shows that when they are able to save it tends to be for their children rather than their own retirement.
The Labour Government has sought to improve the lives of all pensioners and some of the anti-poverty measures, including pension credit with its related disability and caring supplements, have particularly benefited women.
The Turner review highlighted the severe disadvantages facing women in retirement, the lack of access to state or occupational pensions and some of the Government’s most recent changes have taken forward the Turner agenda.
The changes in qualification for the full basic state pension should result in an increase in the proportion of working women who qualify for it – from just under 50 per cent now to 90 per cent by 2025. The value of it should stabilise with the restoration of the link between pensions and earnings, which was broken in the 1980s and which will be restored from 2012.
But women – and then everyone – will have to wait longer to get it, with the pension age for women rising from 60 to 65 between 2010 and 2020 and then the state pension age for all pensioners rising from 65 to 68 between 2024 and 2046.
But the state pension alone has never been enough to provide for retirement and occupational pensions, once the bedrock of pensions for male pensioners, have been in sharp decline. At present, 14 million people working in the private sector do not receive a contribution to their pension from their employer.
An estimated seven million people are not saving enough for their retirement and this under-provision is one of the big drivers of the major overhaul of work-based pensions due to come into effect in 2012.
Introducing this system not only sets the country on the road to a more comprehensive and equitable pension system but also begins to tackle the pressing need to encourage a savings culture. The financial crisis exposed not only the dangers of excessive risk taking, leveraging and the over-reliance on wholesale credit markets within the financial services industry but also the folly of reliance on personal credit within the real economy.
These shifts, and especially the introduction of the personal accounts with auto-enrolment, should bring on to the pension market a large number of new customers, in particular, women.
There will be a real challenge to IFAs in these changes. One will be to provide advice for people who may still have a different work record than many of the more traditional investors in pension products – broken by years off for family responsibilities. Some of the new generation of pensioners may also need careful and reasonably priced advice on the best mix of private and state products, especially pension credit, to maximise income after retirement.
However complex, the direction of travel taken by the Labour Government has to be the right one. In the past 13 years, the priority and great achievement of the Government has been to lift an estimated 900,000 pensioners out of acute poverty, largely through improved state support.
The priority now of ensuring that people have their own pension package, made up of a mix of state and work-based provision should ensure greater financial security for an increasingly long retirement.
The financial crisis exposed the flaws in our financial system resulting from over-complicated financial products to the risks of banks over-leveraging. But it also highlighted the consequences of the lack of savings, especially for retirement.
Labour’s policies for the future provide the best prospects for pensioners and some challenges for IFAs to realise the potential to help people achieve financial security in retirement.