Pension bank accounts will be a reality by the end of the decade, a report by financial consultancy Altus has claimed.
The 23-page report, The High Cost of Freedom: Retirement in 2020, warned of chaos in the at-retirement market, especially as demographic trends suggest that by 2020 there will be 40 pensioners for every 100 active workers.
Following the upcoming freedoms which come into force on April 6, Altus predicted annuities would eventually form only 20 per cent of the at-retirement market – but providers have been taking their time when creating new pension propositions.
Jon Dean, a consultant at Altus, said: “For most product providers, the past 12 months have been about getting their current propositions adapted for the new flexibilities.
“Typically, firms need longer than this to bring genuinely new products to market, so initially we expect to see variations on drawdown bolted on to other pension schemes. The real work on innovation begins in April.”
Altus predicts that pension bank accounts would eventually emerge, giving customers cashpoint access to their retirement funds.
Late last year Wisepensions announced that this year it would launch a pension credit card allowing savers to spend up to an agreed monthly limit, with the balance being settled out of the pension fund.
The Altus report also suggested that advisers would face an uplift in business, while some insurers would leave the at-retirement market, meaning there would be fewer annuity providers.
A recent Scottish Widows report into retirement showed that 37 per cent of pensioners felt optimistic about their long-term finances, compared with 32 per cent in 2013. It also revealed that people were starting to save more towards their retirement.
Figures
How people would choose to use their pension savings
| Would invest their fund and draw an income each year | 13% |
| Would take a proportion of their pension savings as cash | 28% |
| Would buy a product that guarantees an income for life | 11% |
| Would take the entire pot and invest it how they saw fit | 11% |
| Would invest in buy-to-let property | 7% |
| Don’t know | 30% |
Source: Scottish Widows Retirement Report 2014
Adviser view
Rob Wood, an adviser at Somerset-based Wychwood Financial Services, said: “Flexibility will suit some people but there is the danger that pension bank accounts could lead to problems.
“If individuals have the choice to do it themselves without advice, it clearly could lead to some bad situations.”
