Despite the pension reforms the UK market remains well suited to annuitisation, influential think-tank the Pensions Policy Institute says.
In a report, sponsored by the Investment Association and The People’s Pension, the PPI compares the UK system with Australia, Ireland, New Zealand and the US.
It says that despite the new freedoms – which allow savers to take their entire pension pot in one go – factors such as tiered tax rates, a relatively low state pension, the existence of free healthcare through the NHS, and a sophisticated annuity market means it could be an advantage to securing a regular income.
PPI director Chris Curry says: “While the behaviour of DC savers overseas, where drawdown products have frequently been popular, can provide some insight into the direction of travel of the UK, there are significant differences that may have an impact on its response to pension flexibilities.
“Differences between the UK and the US, in particular, mean that some of the barriers to annuitisation in the US are absent in the UK.”
Curry adds countries such as Australia are heading in the opposite direction to the UK and considering some form of compulsory annuity purchase.
He says: “It is possible further steps will be considered in the UK that ‘nudge’ individuals towards decisions that ensure they have a regular income stream over the course of their retirement.”
The report also warns “significant governance gaps” are emerging as a result of the reforms.