By Shelly Durrant,
I recently attended a Financial Services Forum, ‘Out with the new, in with the old: the ageing population as a driver for change’.
One of the many interesting facts I learnt was that following the Government’s announced pension freedoms in the 2014 Budget, the most searched for term on the internet was ‘what is an annuity?’.
This didn’t come as a surprise to me, as someone who has in the past worked with many annuity providers and struggled to explain to many what an annuity is and why you need one.
While I agree with pension freedoms, often referred to as Freedom and Choice, it hasn’t really provided what it intended. Prior to the freedoms, there was already disengagement and savings inertia between people and their retirement savings, primarily due to the sheer confusion around the increasingly complex pensions system, with people at large having little understanding of the pension products available to them. Now they are faced with an increasing range of options of where to invest, leaving them more confused and unsure of where is best to invest and save for their future.
Pension freedoms allow those over age 55 to take the whole amount as a lump sum, paying no tax on the first 25% with the remainder being taxed as if it were a salary at their income tax rate.
In theory, if you’ve been able and sensible enough to save enough for your pension, then you should be trusted to both spend and invest it wisely. However, we’ve seen people dipping into their pensions without thinking about the long-term consequences. So far, over a million UK savers have dipped in to their pension pots and withdrawn over £20bn.
No one is saying that pension freedoms aren’t working, but people are not aware of what a financial decision today could mean for them 5, 10 or 15 years down the line. They also don’t necessarily have the skill-set to be competently responsible.
We need to simplify products, the advice process and to empower people with the ability to arm themselves with the right skills to make sound, sensible financial decisions.
Older people differ to others. Their likelihood of experiencing specific life changing events such as illnesses, changes in physical and mental health, unexpected financial needs and circumstances, capability and preferences, increases as later life edges on.
Not only do older people hold the majority share of wealth in the UK, they are the fastest growing segment of the population with one in four people expected to be aged 65+ by 2050.
Last year over 10,000 telegrams for people celebrating turning one hundred years old compared to just 24 that were issued in 1909 when it launched. We are living in times where people are living far longer than they expect but are financially ill prepared for it.
The financial services industry has got to start by communicating more effectively with consumers. One of the many issues is the use of jargon which merely confusions consumers and makes them switch off. Pensions has never been a glamourous or exciting topic, and nor will it ever be, but we can certainly make it sound far better, and more exciting than we do currently.