Some savers will not be able to benefit from the pension freedoms unless more is done to address the “pitifully low” level of retirement income in the UK, warned KPMG.
A report produced by the professional services firm and supported by the Association of British Insurers, urged industry stakeholders to come up with a clear strategy to address this growing savings gap.
According to KPMG, there are two key policy levers: auto enrolment and tax incentives.
It argued that while auto-enrolment is welcomed, its success is still dependent on consistent levels of contribution, suggested it should be made compulsory or extended to cover self-employed individuals and those on low and variable wages.
Changes to current incentives for pension accumulation were also outlined as a way of altering British savings culture.
Andy Masters, UK head of savings and wealth management at KPMG, said that post-pension freedoms, policymakers must now focus on Britain’s savings deficit.
“They must be bold enough to galvanise savings in ways that materially increase average retirement pots.”
Drawing on interviews with more than 40 industry figures and policymakers, the report also warned that most consumers are neither sufficiently engaged, nor capable of taking responsibility for making pension freedom decisions.
Low levels of financial literacy and “decades of a paternalistic pensions culture” were identified in the report as barriers to raising capability and engagement. It also warned that shifting responsibility from the state to savers is “unlikely to take less than a generation”.
However, new technologies were identified as ways to engage consumers, with the report pointing to digital channels such as ‘robo-advice’ becoming commonplace.
“It’s overdue, but Britain’s savings culture needs a sea change,” said Mr Masters. “Policymakers need to ensure auto enrolment becomes a success, while doing their part to encourage engagement and financial literacy.
“Pension providers must deliver innovative solutions which provide tailored advice to a wider range of customers. Otherwise Middle Britain may struggle to cash in on the new freedoms.”
He added that while pension freedom has made life more complicated for retirees, this is doubly true for pension firms, as the onus is on providers to modernise infrastructure to support flexible, multi-channel propositions.
“Consolidation is inevitable and within five years we expect the retail market to be dominated by fewer firms focused on a simpler, customer centric model.”
Yvonne Braun, director of long-term savings policy at the ABI, commented that the industry is looking at ways to simplify the language used to talk about pensions and long-term savings.
“Throughout their working lives, people should have easy access to information about their pension saving, so they can keep track of how well prepared they are for retirement.
“The industry is keen to support the development of a pensions dashboard. This requires a partnership with government and an over-arching strategy for delivery.”