The pensions and life industry must abandon its “fragmented approach to regulation” and adapt to regulatory and technological change to avoid a potential retirement crisis, the Pensions Institute has warned.
According to the Pensions Institute’s second report: The Meaning of Life 2: The UK life company business model in the context of dramatic changes to the political landscape and the investment and private-sector pensions market, the industry is struggling to adapt to regulatory and technological change.
The report found that the expanding number of new products that offer flexibility and guaranteed income are leading to a potential crisis of provision and consumer protection within the retirement income market. “There is ‘freedom’ but little choice, making decisions more complex. With too few consumers seeking advice, sub-optimal decisions are being made by consumers which could damage their retirement provision,” the Pensions Institute said.
Furthermore, the report criticizes the UK government’s approach to pension saving. It notes that while providing people with auto-enrolment and the pension freedoms, it is also taking away other legislation including the lifetime allowance, annual allowance, MPAA and the taper. This is in conflict with the policies of other OECD nations, it has been stated. As a result, the report calls for the government to address retirement products and pensions in a more holistic manner.
To add to this, the report emphasised the importance of technology to improve the customer experience. It recommended that current initiatives including the pensions dashboard should look to “replicate broader technology standards, such as those used in the Open Banking Project”.
The report also suggested that the description of the back book market should be amended to also include Bulk Purchase Annuities, private sector close DB schemes and legacy DC schemes with Guranteed Minimum Pensions, as well as other guarantees.
Author of the report Pádraig Floyd, said: “The industry faces a number of challenges, which are highlighted in this timely report. There are conflicting policy signals coming, on the one hand, from the encouragement to save for retirement via auto-enrolment and on the other, from the freedom to withdraw funds from age 55, with no obligation to secure a life-long income. As the report details, in a few years’ time there is the real prospect that there could be no private-sector providers of longevity risk cover. This will result in the state having to bail out those who outlive their pension assets and could severely damage future inter- generational solidarity.”
Phoenix Group chief executive Clive Bannister added: “The intervening years between the two Meaning of Life reports has seen unprecedented change both within the life industry and in wider society. These range from Brexit to the roll-out of pensions freedoms and the implementation of Solvency II. These dynamics are set to have a profound effect upon the shape of the market. It is vital the industry works with policymakers to ensure the best possible outcomes for consumer protection and the sector’s own future.”