More needs to be done to give people the freedom they want at retirement, says Graham Vidler, director of external affairs, NAPF
The Government’s Pension Freedoms have the potential to bring real benefits to pension savers. But three months into the new reforms and, while all savers can still transfer their pot from a scheme or buy an annuity, many are understandably frustrated at what they perceive as a lack of the promised flexibility, such as drawdown.
The National Association of Pension Funds (NAPF) has published new research to understand what the 2.2m people aged 55-70 with approximately £175bn in defined contribution (DC) pension pots not yet in payment plan to do with their savings under the new Pension Freedoms.
Most (56%) don’t know yet. But among respondents who do have a plan 70% of respondents were attracted to the idea of keeping their money invested while drawing an income; what we in the industry might call drawdown.
This implies a potential market of 1.5m investors with an approximate value of invested pots between £50bn to £100bn. Interestingly, even among those with smaller pension pots (less than £25,000) the majority (54%) liked the idea of drawdown.
It’s not hard to see the appeal to savers of drawdown as it offers flexibility, control and investment growth. However, we are also concerned about some of the misapprehensions that exist around drawdown. For example, just over half (53%) of the people we asked believe drawdown will offer a guaranteed income and one quarter (25%) thought that drawdown carried no risks at all.
We want to see all pension savers, including those with smaller pots, offered the full freedom and choice promised to them by the Chancellor in his 2014 Budget.
But for this to happen we have to see a market develop that works for all savers, with products that are transparently priced and offer value for money, designed to help savers navigate the twenty or thirty years during which they will rely on their pension savings. These products will need to be well run and clearly communicated to customers.
The fact is these products aren’t yet freely and readily available for savers with small pension pots and government must help encourage a pensions market that works in the interest of all savers including those with smaller pension savings.
We have argued that government must take three actions. They must ensure there are no regulatory barriers to a market where good value products are available to savers with pots of all sizes, large and small. They should work with us to support the development of standards by which trustees can evaluate whether products offer quality and value for money to their members. And they should work with us and the regulators so that company pension schemes are enabled to clearly signpost savers to the products that meet these standards.
Graham Vidler, director of external affairs, NAPF