Lansons Conversations

Where next for pensions after the retirement revolution?

Pensions Panel | Future of Financial Services Conference
Following yesterday’s Future of Financial Services Conference, organised by Lansons, Sophia Morrell has summarised the lively debate around pensions reform by our panellists Michelle Cracknell (CEO, The Pensions Advisory Service), Josephine Cumbo (Pensions Correspondent, FT), Mick McAteer (Director, Financial Inclusion Centre) and Steve Webb (former Pensions Minister)…

On the back of the most far-reaching reforms to the UK pension system in decades, fierce debate has become a matter of course when pensions industry voices gather to discuss the future. Those at the vanguard of change are quick to point out that the so-called “Lamborghini effect” predicted to decimate lump sums has not materialized and the virtues of greater choice; others argue that the reforms did not go anywhere near far enough in tackling the problems at the heart of the system. At the Lansons Future of Financial Services Conference yesterday, these debates played out at length in a panel on the so-called “retirement revolution”, which came into force earlier this year.

Michelle Cracknell, Chief Executive of The Pensions Advisory Service, assured us that the majority of retirees phoning up PensionsWise for advice already have a plan, are considered, cautious and distinctly “British’ in their approach. This runs counter to media fears ahead of the changes that irresponsible retirees may squander their cash. Steve Webb, the former Pensions Minister who masterminded the reforms, was relaxed about how people chose to spend their money even if they did decide to draw down on their pot, arguing quality of life is what matters in retirement.

Curiously, as Josephine Cumbo, Pensions Correspondent for the Financial Times pointed out, individuals are more likely to cash out their lump sum when managing the process online, rather than on the phone. There is clearly something more powerful about a spoken risk warning as opposed to a digital one – something for providers and pensioners to consider in the move to a multichannel customer environment.

However, it is clear that the real challenges ahead lie beyond those with well-stocked pension pots. Mick McAteer, Director of the Financial Inclusion Centre, highlighted the plight of those who have been pushed into insecure work – employees on zero hours contracts, the self-employed and those on low incomes. The model has not been designed for this type of work and so these people have been woefully underprovided for in current pension provision. Steve Webb countered that provisions are improving for all segments – those on zero hours typically work a 20-hour week on average and contribute on auto-enrolment as soon as they are earning.

Generation Y faces equally deep-rooted issues. The panel highlighted the need to educate young people on their pensions choices and the critical role of default contributions to create a savings habit. As Josephine Cumbo highlighted, this system has been effective in Australia where savings begin earlier and indeed remove choice through the employer automatically making contributions for the employee. However, although auto-enrolment has brought the highest rate ever of individuals in their twenties contributing to a pension, it can’t increase the savings rates of a generation squeezed by high living costs and excluded from generous DB schemes. In decades to come, this will surely be one of the central problems the industry needs to solve.

 For more on the Future of Financial Services Conference, visit the conference website, keep an eye on our Twitter feed (#futurefs) and LinkedIn Page, as well as the Lansons website.

You can learn more about Lansons’ work in pensions by reading our case studies on The Pension Protection Fund, Phoenix and Scottish Widows.