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Think-tank calls for default pension income plan as freedom fears mount

A fundamental lack of engagement with finance could threaten the success of the Government’s pension reforms, the Strategic Society Centre warns.

The think-tank says a default “automatic income plan” is needed to protect savers who have little experience of investment and warns the UK is in danger of following the Australian retirement market, where pensioners are running out of money too soon.

Earlier this month, consumer group Which? called for a nationalised drawdown provider to guard against high charging contracts.

Drawdown is expected to grow in popularity following the introduction of the pension freedoms that have seen annuity sales dive.

However, according to the Society’s report, only a quarter of 55 to 65-year-olds keeps track of the stock market, while one in three say they are aware of inflation levels. 

In addition, the research reveals only 12 per cent of ‘low-income’ pensioners have an investment product, 34 per cent do not have a savings account or Isa, while 41 per cent admit to not following financial index.

Strategic Society Centre direcotr James Lloyd says: “The results of the Government’s April pensions revolution will ultimately depend on the financial capability and decision-making of millions of UK workers. However, this detailed research on the financial capability of DC pension savers approaching retirement shows worrying levels of financial disengagement, raising questions as to how effective people will be in seeking good-value, appropriate products throughout retirement, that protect them from changes in inflation and investment risk.

“Our research suggests the Government’s pension freedoms could repeat the experience of countries like Australia, where freedom and choice for retirees has ultimately resulted in lower incomes and growing calls for reform.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Why are financial services always compared to Australia? Doesn’t anyone retire or buy financial services in the rest of Europe?

  2. So a bunch of leftish academics who were working primarily for Gordon Brown until 2010, totally unelected, decide what is good for us.
    Do none of these well educated academics understand that the flat rate pension is coming in in 2016? This means most married couples will have over £300 per week, this is more than the minimum wage for 40 hrs/week. That is £15,600 p.a. Those with contracted out pensions may get a bit less but they do have in most cases, a final salary pension to more than make this up. Many existing pensioners in middle class provincial areas live well and comfortably on a lot less. Yet another nay-saying organisation that wants to trash the Tory party prior to an election.
    They even quote Australia where a similar policy has found the majority do NOT spend asll their pension. To take away freedom just in case a small number are stupid is crazy!

  3. Hi Paul – Australia has been examined a lot since the Budget 2014 announcement because they have total flexibility and choice for DC savers at retirement, and because the Murray Inquiry recently concluded a major review of the financial system there. It found that freedom and choice there resulted in lower retirement incomes, so has recommended introducing a default ‘Comprehensive Income Product for Retirement’, which we’ve drawn on a lot in today’s reports.

    Hi Pro V #1 – not sure where you’ve got the stuff about working for Gordon Brown. I’ll try and respond to your substantive points:
    * The New State Pension is provided on an individual basis, but your point seems to miss the fact that a very large percentage of the retired population live alone. Also, by no means everyone will be entitled to the NSP after 2016.
    * This is not an attempt to trash the Tory party. The Budget 2014 changes were from the Lib Dem/Conservative coalition, and a wide range of organisations have raised concerns, and a growing number are proposing a ‘default option’ approach of the kind we are today.
    * Australia also allows freedom and choice and retirement. However, research there shows most pots are spent on property and vehicles. This has led the recent Murray Inquiry to propose a major overhaul of the system there built around a default approach. Here are some quotes:
    –> “[Superannuation] assets are not being efficiently converted into retirement incomes due to a lack of risk pooling and an over-reliance on account-based pensions. This contributes to a lower standard of living for Australians in retirement and, for some, during working life…”
    –> “Greater use of risk pooling could significantly increase retirement incomes generated from accumulated balances. This could allow individuals to allocate consumption throughout their lives better… by reducing the savings required to achieve a target level of income in retirement.”

  4. Strategic Society Centre? Haven’t heard of that one before. Where do all these think tanks come from and who funds them?

  5. Hi Julian, Full info on the Strategic Society Centre including funding is available on our website: http://www.strategicsociety.org.uk.This particular study was funded by the Joseph Rowntree Foundation.

  6. And how is the Joseph Rowntree Foundation funded?

  7. The JRF was created by the businessman and philanthropist Joseph Rowntree in 1904. You can find out more on its history here: http://www.jrf.org.uk/about-us/our-heritage

  8. Another daft poll rigged to provide the answer that the questioners wanted. I don’t keep track of the stock market indices either, at least not on a day-to-day basis. I’m an investor, not a speculator. Nor do I see why a low-income pensioner should be expected to have an investment product, if they’ve got no money but have been flogged a risky investment the CMCs should probably be circling.

    Next week we’ll ask some pensioners what kind of shoes they’re wearing, and when 62% reply “slippers” or “barefoot” we’ll send out the pre-written press release “pensioners unable to tie their own shoelaces shock”.

  9. Hi Sascha, To clarify, the research was not based on a poll. The research analysed data from the Wealth and Assets Survey, a government funded survey of around 40,000 households in GB, and probably the most reliable data source available on household financial behaviour, income, wealth, etc. in the UK.

    You can find out more about the Wealth and Assets Survey at: http://www.ons.gov.uk/ons/rel/was/wealth-in-great-britain-wave-3/2010-2012/index.html

  10. @James Lloyd
    I have looked at your website and can’t see anything obvious there about how you are funded. Being a charity I assume it’s from donations but given the nature of your work the donors are relevant. You have also been hired in the recent past by the Labour Party. If there is a political flavour to this then we should probably know.

  11. Hi Grey Area,

    Information on how the Centre is funded is in the ‘Funding’ section of our website. Like most charitable think-tanks, we receive funding on a project-by-project basis, from a wide range of sources.

    There is no political flavour to this. As it happens, the April 2015 changes to DC pension taxation have received cross-party support, and were a joint product of the Conservatives and Lib Dems.

    Also, if may say, Grey Area, if you are going to raise a point about transparency, some might think it odd you hide your real identity behind a pseudonym rather than using your actual name, as Julian and Paul have done above.

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