The pensions landscape continues to reinvent itself at quite a pace.
If you look at the rate of change on retirement, it has gone from rapid, to now breakneck speed. Hardly a week goes by without another update, and there may be more to come.
Overall, the new pension freedoms are good news. There are those who firmly believe that individuals cannot be trusted to solve their income needs. However, in today’s world, pension freedom ultimately makes sense.
Final salary pension schemes have gone for the majority, and instead we are all increasingly responsible for ensuring we have enough savings to support us in retirement. The old days of the annuity do not meet today’s lifestyle choices.
For that reason, I am a huge supporter of providing greater flexibility and choice in how retirement income can be generated.
The comment that has raised most eyebrows though, is the idea people will be able to use their pension as their bank account. The reaction was quite surprising, ranging from those who said it would never work, to others who talked about the dangers of giving that level of accessibility to customers.
As much as I can understand some of the nervousness, I don’t think the idea of using your pension as your bank account is as absurd as you may think. In fact, I have seen this in the US – and I may have seen the future.
The US market is always seen as a benchmark for how the UK might evolve. Its retirement landscape is already a mirror of where the UK goes. The use of annuities is generally less than 20 per cent of the retirement income market, and most retirees have full flexible access to their retirement savings.
There are some downsides, and you can search the web for many cases studies where customers have overspent their retirement savings. However, the US doesn’t have the same safety nets as we do in terms of state provision.
There are services now in the US that do exactly as chancellor George Osborne describes. You can set up facilities to access your retirement savings that work just like your bank account.
You can set up variable withdrawal plans, you can link a debit card, and even pay bills, all from your retirement account.
Money as you want it, when you need it, straight into either your hands, or to the person you need to pay. If you don’t need the money, it stays invested in your retirement account.
These services give accessibility, allow flexibility of how income is taken, but also provide better control over how money can stay invested in a retirement account. These services have now started to really grow in the US, with many investors adopting them instead of using a conventional bank account.
Some may accuse Mr Osborne of moving too fast, giving too much flexibility and putting choice in the hands of too many who lack the capability to understand the consequences of their decisions.
Our research shows that few people will actually go out and splash their cash frivolously, and instead are likely to be more cautious.
Maybe the pension as your bank account is not so much of a pipe dream as you may think – and also not as dangerous as many consider.
Ed Dymott is head of business development at Fidelity
