The image of silver haired Lamborghini drivers accompanied much of the press coverage of the pension freedoms. So, almost six months since greater flexibility was given to the over 55’s, has it all been frittered away?
The numbers look vast: £27 million a day has been withdrawn on average since April, with insurers paying out a total of £2.5 billion. But that’s not the whole story.
It’s not a level playing field. While the over 55’s are accessing small insured pension plans, many with employer-sponsored schemes aren’t enjoying the same freedoms.
Research by Towers Watson shows that two-thirds of employer schemes are still focusing on annuity purchase and, despite widespread interest from employees, fewer than half intend to offer flexibility. It’s no surprise that schemes geared for retirement savings face governance and complexity challenges when asked to be an income provider.
Pension schemes are a rich employer-sponsored benefit that have struggled to captivate employees. Flexibility addresses some of their key concerns. Not offering it risks diminishing perceived worth.
Life and work are filled with personal choice and self-service. Employment tenure has been reducing for many years. Portfolio careers are on the up and the way we view the employment relationship is changing. Employees expect to be in control. It’s incongruous that schemes are not reflective of this.
Demand for flexibility is high. To gain control, employees are transferring their pensions. Let’s hope in the longer term, employer-sponsored schemes can respond.
And what about those who have accessed their pensions? Evidence from the Association of British Insurers (ABI) shows that savers are continuing to be prudent, £1.3 billion has been invested in income drawdown products and annuities.
Furthermore, pension flexibility is being used as a debt solution. Figures from Fidelity show that 29% of its customers used cash withdrawals to pay off secured and unsecured debt. So it seems that flexibility is being used to rationalise multiple small pension pots, secure retirement income and create a secure financial future. With cash lump sums averaging just under £15,000, the fast car will have to wait.
Julia Hanna is director and co-founder of Verditer Consulting