Personal PensionMay 22 2013

An industry in transition

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Retirement – a dream featuring a rose-covered cottage or the nightmare of old-age penury? That is the consumer pension provision dichotomy. And there is an equivalent hope and fear for advisers and the pension industry as they balance fast-changing client needs against the model that has served them well in the past.

Retirement is a hot topic, albeit on a slow burn. And with the post-war baby boomers increasingly considering their future, the one-time emphasis on accumulation – building up pension pots – is now joined, or even surpassed, by decumulation, turning pension savings into future incomes. Against this background Financial Adviser, in conjunction with Aegon and James Hay Partnership, invited a panel of pensions experts to discuss with an adviser audience issues ranging from open market option annuities to the complexities of Sipps versus Ssas.


Hargreaves Lansdown’s head of pensions research Tom McPhail said that the decumulation of existing pension pots is the biggest challenge currently facing the industry.

He said: “It is the at-retirement space that should draw our attention. There are huge sums involved – at Hargreaves Lansdown alone we expect to handle some £35bn this year – and these amounts are growing. The baby boomer generation is retiring with 800,000 [people]a year needing to cash in their pensions in some way. And while in previous decades most retirees would have claimed on DB plans, we now see the maturing of many of those defined-contribution policies taken out in the 1980s. We can no longer, as we once could, expect clients to be in defined benefit plans. From a peak of 12m members in 1967, these plans are essentially in run-off, with the abolition of contracting out in 2016 likely to prove their final death.”

He warned against expecting an easy ride from DC clients. “For the industry, it’s a given that most have not done enough. But it’s been difficult to encourage pensions savings against the social memory of mis-selling, Equitable Life, stockmarket crashes and falling annuity rates.”

He added: “People are disenchanted. Some 80 per cent of pension pots are under £50,000 with a large proportion of these under £10,000. Advisers have to add this to concerns that retirement, once a ‘gold watch’ occasion, has become increasingly messy. They don’t retire when they think they will. There are Isas, mortgages including interest-only, and health issues to consider as well as part-retirement.”

Mr McPhail said that one area where advisers could be positive is in encouraging the shopping around of annuities. Those retiring with DC pots have been told about this since 2002, but more than 50 per cent fail to survey the market.