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The flexi future

Aifa chairman John Gummer believes the UK is in a “peculiarly dangerous” position due to the size of its long-term debt and that, as a consequence, fundamental Government policy changes are required in the retirement sector.

The Conservative MP for Suffolk Coastal says the next government will have to adopt a tough attitude to ensure that people take more responsibility for their finances in retirement.

Gummer says: “Whoever becomes the Government after the next election will be faced with the most appalling hole in its finances. We are clearly not going to be able to think of improving what the state does for retirees. The problem will be how much of what we do now we can continue to do.”

Aifa, in association with Prudential, recently released a study, Financial Planning Through Retirement, which outlined changes it believes are required by the Government, providers and IFAs to ensure that people maximise their income and wealth in retirement.

Gummer, who has been Aifa chairman for six years, says he took a particular interest in the study because many of his constituents are in or approaching retirement. He believes people’s expectations of being provided for in retirement have risen over the past 50 years but that people are becoming less prudent and less likely to save for the long term.

The study calls for an independent review of the decumulation market, recommends that the Government and employers play a greater role to encourage financial advice in the workplace and highlights the need to educate individuals as to the importance of taking responsibility for their provision of income in retirement.

Gummer believes that future Governments will have to be more flexible about when people retire.

He says: “I would like to see a society in which we do accept that 70 is the new 50. We are going to have to find a more flexible way of treating people and there will be lots of people in semi-retirement, lots of people not retiring until quite late and we are going to have to be the sort of society that does that because we will not be able to finance the kind of incomes which people have grown to expect.”

Gummer describes himself as “a radical” on this issue and believes the compulsory retirement age should be scrapped. “I think that getting rid of somebody because of their age should be just as unacceptable as getting rid of people for other reasons.”

He believes that there needs to be more movement on the state pension age and says the present timetable of raising it to 68 by 2044 is too slow.

“I am always very suspicious of things like this. It is rather like climate change when they did their first energy white paper. The only date in it was 2050 and everybody knew that every politician would be dead by then so you wouldn’t know if they’d done it or not.

“And I do find 2044 the sort of date that nobody really takes seriously because if you are retiring in 2010, you’re talking about 34 years. With an ageing population, we are going to have to find different ways of encouraging people to work longer. I am not proposing that we suddenly raise the retirement age but you can make it worthwhile for people not to draw their pension for longer periods.”

Gummer believes that the state retirement age will have to be seen as a minimum age at which to retire.

But he says the key to kickstarting retirement saving is getting people access to good advice.

‘Protect advisers from being accused’

“It seems to me that we should be doing everything we can to get people advice. Advice in the workplace is very effective and giving people access to that advice is very important. Employers cannot do it themselves, they are not experts on it but they can provide the opportunities for those who do know about it to give advice. And we must protect advisers from being accused very much later on if the advice does not turn out to be as good as it could be, because for most people any advice is better than none.”

One of the main reasons that people shy away from taking responsibility for their retirement income is because it is “so boring”, says Gummer.

“This is one of those things that gets me so angry about the FSA. They constantly talk as if people want to know all the details of the provision which is being made for them. My experience is that people don’t want that, that is why they go to advisers.”

Gummer is a great believer in the correct use of the English language and says this is an integral part of reforming the retirement and advice landscape. In its report, Aifa calls on the industry to work together to develop a glossary of terms in plain English to simplify the sector for consumers.

“I sometimes get attacked for going on about this but, for me, it is about the English language. Adviser means something and once you pretend that adviser means something else, then I think people are misled.”

He thinks it is necessary to have an independent inquiry into pensions and, more particularly, into the decumulation process..

“We should look at the place of reversion and lifetime mortgages in the provision for retirement for old age. I think we need to have another real look at annuities, the whole business about compulsory purchase of annuities.”

But Gummer stops short of agreeing that there needs to be a non-party political long-term strategy on retirement.

“In the end, somebody has to decide where the money is coming from and what the priorities are. Once you talk about where is the money coming from and what the priorities are, then you are in politics. I don’t see how you avoid that.”

Gummer has strong concerns that politicians are not well enough informed about issues over financial advice and retirement and that, partly as a result of this, the Treasury meddles too much with the tax and pension rules, often by imposing retrospective changes.

“I think it is outrageous the way in which the Government has changed the rules. The Government has given advice on all sorts of things. I mean, think of the state second pension, that is a very good example.

“I have got three simple rules where politicians are concerned. First of all, politicians have got to understand the issues and my concern about pensions is that most politicians are like most people, it is something they prefer someone else to deal with.

“The second thing is that the Treasury has got to learn that it must have long-term proposals which it does not alter year by year and it really must not do things which are retroactive and retrospective.

“The third thing is simplicity. I think it is outrageous that everything is now so complicated that we get into a position where advice becomes utterly necessary even for the simplest of things.”

He is critical of personal accounts and says it is another example of a Government that “half-thought something through”.

Gummer says: “I am afraid that personal accounts was a headline-grabbing political proposal which, after all, was at a time in which everything was hunky-dory. I think we have got to look at it in a much more robust way.

“That does not mean to say that I don’t think there are some very good aspects to it but I just think you cannot deal with it on its own and in isolation.”

John Gummer

  • 1970: Elected to Parliament as the Conservative MP for Lewisham West.
  • 1979: Returned to Parliament as MP for Eye. Held the constituency until it was abolished and since then has been MP for Suffolk Central.
  • 1983-1984: employment minister
  • 1985-1988: Minister for the department of agriculture, fisheries, food
  • 1988-1989: environment minister
  • 1989-1993 Minister for the department of agriculture, fisheries, food
  • 1993-1997 Secretary of State for the Environment
  • 2005-present: Chairman of the Conservative quality of life policy group

Aifa recommendations

  • Advisers

Clear guidance and training is needed for those who provide decumulation advice

  • Employers

Independent financial advice in the workplace should be better promoted and funded by the Government and employers

  • Providers

Providers should adopt a consistent approach to product features, product suitability and product comparisons. An industry standard glossary of terms should be agreed

  • Consumers

There should be a review of financial capability programmes to ensure they are improving financial education levels as cost-effectively as possible

  • The Government and the FSA

The level of capital disregarded for retirement means-tested benefits should be reviewed on a regular basis to ensure that the rules do not penalise equity release. The Government should commission an independent review aiming to deliver institutional arrangements that ensure a joined-up regulatory and public policy approach to decumulation Whoever becomes the Government after the next election will be faced with the most appalling hole in its finances

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