A London-based think-tank has warned that average pension incomes will decline over the medium to long-term.
Yesterday (14 July), think-tank the Strategic Society Centre launched two reports, the first of which looks at the role of guaranteed income in people’s experience of retirement, and the second is a policy discussion paper based on the findings and related topics.
The reports found there is a strong correlation between income and people’s experience of retirement, and a lesser correlation between people’s experience of wealth and retirement.
James Lloyd, director at the Strategic Society Centre, said: “Since the Budget 2014 we’ve had lots of policy debate on the things like the guidance guarantee, charges, and of course the Lamborghini issue of whether people can be trusted with their money, but what we felt was one topic that was completely absent from this debate which is: will the April 2015 changes actually lead people to have better or worse retirement?”
He flagged up that due to the pension freedoms, the system has moved from ‘compulsory’ annuitisation to a system of voluntary annuitisation.
Mr Lloyd said: “When you have voluntary annuitisation systems typically you have very low rates of people turning their pension pots into an annuity or into a secure income.
“This means in the medium to long term in the UK it is reasonable to expect that fewer DC savers will obtain guaranteed incomes at retirement and we can also expect that DC savers in the future will have higher levels of savings and investments during retirement funded from their DC savings pots.
“We could further expect that average private pension incomes will decline over the medium to long term, over the next five, 10, 15 years and this raises a question.”
Also speaking at the event, Baroness Jeannie Drake, former member of the Pensions Commission, said: “It is no longer the role of the state to direct or nudge individuals as to how they use their pension savings, the government is now neutral on the proportion of retirement wealth individuals hold as secure as pension income.
“The speed of the introduction of the reforms meant that little consideration was given to what this change would mean for the retirement experience of successive generation of pensioners.
“As the Strategic Society Report notes, in the consultation document issued alongside the 2014 Budget not one of questions related to the actual retirement outcomes of workers or peoples well being as a result of the changes.”