Scheme members give their response to the budget changes
We’ve heard many industry views on the outcome of the Budget changes - but what do members really think? At Pensions Insight’s annual DC conference, DC Insight, Aon Hewitt’s Sophia Singleton revealed that only 5-10 percent of DC savers expect to take their pensions as cash, leading Singleton to conclude that the Lamborghini is a complete myth.
Aon Hewitt surveyed 2,000 DC scheme members, asking them how they felt about the Budget changes and what they wanted to do at the point of retirement.
Flexibility isn’t that important for members
The vast majority of respondents are not very interested in flexibility, Singleton revealed. Stability and security were far more important, with 70% naming security as the most important aspect of a post-retirement product.
“A lot of retirees want a product that acts like an annuity, but isn’t called that”
While people are disenchanted with annuities, it’s not a lack of flexibility that’s at fault, but rather a distrust of annuity products. Singleton concluded that a lot of retirees want a product that acts like an annuity, but isn’t called that.
Singleton says the industry can’t deliver something that resembles an annuity, but what it can do is give members education and guidance so that they fully understand the risks of running out of money. Furthermore, the industry needs to ensure that members are guided not just at the point of retirement, but also during retirement.
Fortunately, additional research carried out by Aon Hewitt in July found that almost two thirds of schemes want to help members in retirement, whether by offering drawdown products or having a preferred drawdown partner.
“Almost two thirds of schemes want to help members in retirement”
Finding solutions for post-retirement is really important. Singleton felt that a key feature of such products would be a smooth investment strategy with no big transition costs at the point of retirement.
She also believes that costs will be crucial in the post-budget environment. The drawdown market is currently very expensive, but providers that can negotiate “better, institutional type rates” will be much more attractive to members.
Empowering members through education
According to Singleton, people with pots of around £50,000 will suffer from a lack of advice as advisers won’t be interested in them, and they won’t want to pay for advice. In fact, only a quarter of those who responded to Aon Hewitt’s survey said they would take financial advice at retirement.
Singleton explained that overwhelmingly members wanted to be empowered to make their own decisions, which once again showed that guidance from schemes would be crucial if we wanted members to have good outcomes.
“Members want to be empowered to make their own decisions”
Singleton concluded that the solution was concise, targeted advice at different points throughout a scheme member’s journey, with access to tools like decision trees and online modellers.
What was clear was that members felt that they understood the new changes and were pleased with them, but need a lot of guidance and education in order to avoid a crisis later on.