Pensions minister Steve Webb says the retirement industry faces a “decade of innovation” from next April as the new Budget freedoms adjust to a changing market.
Speaking to a fringe event at the Liberal Democrat conference in Glasgow yesterday, Webb said the growing size of defined contribution pots through auto-enrolment will have a big impact on retirement income products.
From next April anyone over 55 can take their pension pots in full subject to marginal tax rates, with providers expected to launch a series of new products in its wake.
Over the weekend, Webb said he would watch the industry “like a hawk” as it developed new products under the freedoms but yesterday he hinted the regulatory environment should not be too heavy-handed.
Webb said: “On products innovation, my hunch is that people will enjoy the new freedoms by taking some cash – a few thousand pounds is a lot of money and they will be able to do something that gives them a lot of satisfaction such as take a trip or give it to the grand children, it will be different for every person.
“The vast majority of people need the money to live off so for the foreseeable future most people won’t actually have a huge amount of choice, they will need the money there and then. They may take an annuity a bit later and it could be more flexible. I think this will evolve as DC pots grow so while some are talking about innovation next April, we face a decade of innovation to be honest.
“But I do wrestle with how we regulate products in retirement. We have gone for quite a heavy handed regulation in accumulation as people aren’t making choices and the market isn’t really a market, therefore we need to keep it really simple and good value.
“It is a bit different in decumulation as it is the individual making choices for themselves but they are are still very complicated choices so consumer protection remains very important. Exactly how that looks we will have to keep an eye on.”
Webb also said regulation must focus on the “bunch of scumbags” who could move from pensions liberation scams to conning people out of their freed up pension pots.
Financial Services Consumer Panel member Jeff Salway says the advice market will see most innovation in the next few years.
He says: “I think innovation will come from advice in online systems. The UK industry has been quite slow, especially pensions, to develop these type of services but it starting to happen in advice now. There could be an advice decision tree online as it as a low cost advice services so that is where most innovation will come in the next few years rather than products.”