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Retirement Income: Risks and
Opportunities
Monday 16th
June 2014
This event is kindly supported by Prudential
#risksandopportunities
Welcome
Josephine Cumbo
Pensions Correspondent
Financial Times
This event is kindly supported by Prudential
#risksandopportunities
Tim Fassam
Head of Public Affairs
Prudential
This event is kindly supported by Prudential
#risksandopportunities
Ben Franklin
Research Fellow
ILC-UK
This event is kindly supported by Prudential
#risksandopportunities
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Freedom and choice in pensions
Risks and opportunities
Ben Franklin, International Longevity Centre – UK
@ilcuk
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
What am I going to cover?
 What are the reforms?
 What are the key factors likely to drive decision making and
their associated risks?
 Economic context.
 Products and advice.
 Personal/household behaviours and characteristics.
 Legislative agenda and regulatory oversight.
 Summarising the risks and opportunities.
 What key measures are needed to ensure success?
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
What are the new freedoms?
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The old tax system
Source: HM Treasury
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Where have all the boxes gone? The new tax system...to be
implemented in April 2015
Source: HM Treasury
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Key factors likely to drive decision
making and their associated risks
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The economic context…lower for longer
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Hoping for a significant reversal in monetary policy
any time soon is like clutching at straws
Recoveries from various recessions
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Implications for consumers…
 The search for yield will shape decision making.
 Could result in savers channelling pension wealth into
unconventional products.
 Lead to exposures on Buy to Let? Equity markets?
 Or, alternatively, individuals could opt for big ticket
items.
 Many will also use pension savings to pay down debt.
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Debt will remain a key part of the picture
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Products and advice
 Potential for innovation in products:
 Drawdown for mass market.
 U shaped annuites.
 Property.
 Other products…
But…increased choice will mean consumer engagement
and advice critical…
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
A quick word on property
Safe as houses? Inflation adjusted house prices can take
time to regain losses in value
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The need for advice…
 One-off guidance could leave people with more questions than
before.
 The “advice gap” – only around 30% of population has ever
taken financial advice (source: CII)
 Typically high net worth individuals
 But what about the rest of us?
 Need a mass market solution…
 Otherwise risk of poor consumer decisions and apathy in face
of complexity.
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The advice gap
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Personal behaviours and characteristics
 Immediate rewards are hard to resist.
 People consistently underestimate their life
expectancy.
 Low levels of financial literacy.
 Tendency to buy low sell high.
 All could result in sub-optimal decisions and
underline need for guidance and advice.
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Underestimation of life expectancy
Average individual life expectancy
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Legislative agenda and regulatory oversight
 Both will continue to shape the landscape for
retirement.
 Issues about coordination between FCA and TPR.
 Possible differences between the legislative
agenda and the regulatory one.
 Timeframes to prepare for the new freedoms are
tight.
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Summarising the risks and opportunities
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Summarising the risks and opportunities
Opportunities:
Reforms result in consumers better able to meet changing income needs
throughout retirement:
Consumers can optimise investment strategies.
Room for innovation in financial products to meet consumer needs.
Opportunity to create advice models for the mass market.
Consumer risks:
Reforms result in consumers having less income in retirement. This could
be because:
Consumers unwittingly becoming exposed to high risk investments and
products.
Consumers decide to spend it all today.
Consumers are apathetic in the face of complexity and do nothing.
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
What needs to be done to maximise the
opportunities?
 Effective innovation in products and services.
 Increased consumer engagement in advance of
retirement.
 Guidance to address behavioural biases.
 Advice models for the mass market.
 Regulatory approach to welcome innovation but
wary of the economic and behavioural risk drivers.
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Many thanks
Ben Franklin
Research Fellow
International Longevity Centre - UK
benfranklin@ilcuk.org.uk
0207 340 0440
Twitter: @ilcuk
Dean Mirfin
Group Director
Key Retirement Solutions
This event is kindly supported by Prudential
#risksandopportunities
Andrew Tully
Pensions Technical Director
MGM Advantage
This event is kindly supported by Prudential
#risksandopportunities
Tom Boardman
Deputy Chair
NEST
This event is kindly supported by Prudential
#risksandopportunities
Discussion and Q&A
This event is kindly supported by Prudential
#risksandopportunities
Jane Vass
Head of Public Policy
Age UK
This event is kindly supported by Prudential
#risksandopportunities
Michelle Cracknell
Chief Executive
The Pensions Advisory Service (TPAS)
This event is kindly supported by Prudential
#risksandopportunities
Discussion and Q&A
This event is kindly supported by Prudential
#risksandopportunities
Retirement Income: Risks and
Opportunities
Monday 16th
June 2014
This event is kindly supported by Prudential
#risksandopportunities

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16Jun14 - Retirement Income: Risks and Opportunities

  • 1. Retirement Income: Risks and Opportunities Monday 16th June 2014 This event is kindly supported by Prudential #risksandopportunities
  • 2. Welcome Josephine Cumbo Pensions Correspondent Financial Times This event is kindly supported by Prudential #risksandopportunities
  • 3. Tim Fassam Head of Public Affairs Prudential This event is kindly supported by Prudential #risksandopportunities
  • 4. Ben Franklin Research Fellow ILC-UK This event is kindly supported by Prudential #risksandopportunities
  • 5. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Freedom and choice in pensions Risks and opportunities Ben Franklin, International Longevity Centre – UK @ilcuk
  • 6. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. What am I going to cover?  What are the reforms?  What are the key factors likely to drive decision making and their associated risks?  Economic context.  Products and advice.  Personal/household behaviours and characteristics.  Legislative agenda and regulatory oversight.  Summarising the risks and opportunities.  What key measures are needed to ensure success?
  • 7. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. What are the new freedoms?
  • 8. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. The old tax system Source: HM Treasury
  • 9. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Where have all the boxes gone? The new tax system...to be implemented in April 2015 Source: HM Treasury
  • 10. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Key factors likely to drive decision making and their associated risks
  • 11. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. The economic context…lower for longer
  • 12. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Hoping for a significant reversal in monetary policy any time soon is like clutching at straws Recoveries from various recessions
  • 13. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Implications for consumers…  The search for yield will shape decision making.  Could result in savers channelling pension wealth into unconventional products.  Lead to exposures on Buy to Let? Equity markets?  Or, alternatively, individuals could opt for big ticket items.  Many will also use pension savings to pay down debt.
  • 14. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Debt will remain a key part of the picture
  • 15. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Products and advice  Potential for innovation in products:  Drawdown for mass market.  U shaped annuites.  Property.  Other products… But…increased choice will mean consumer engagement and advice critical…
  • 16. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. A quick word on property Safe as houses? Inflation adjusted house prices can take time to regain losses in value
  • 17. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. The need for advice…  One-off guidance could leave people with more questions than before.  The “advice gap” – only around 30% of population has ever taken financial advice (source: CII)  Typically high net worth individuals  But what about the rest of us?  Need a mass market solution…  Otherwise risk of poor consumer decisions and apathy in face of complexity.
  • 18. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. The advice gap
  • 19. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Personal behaviours and characteristics  Immediate rewards are hard to resist.  People consistently underestimate their life expectancy.  Low levels of financial literacy.  Tendency to buy low sell high.  All could result in sub-optimal decisions and underline need for guidance and advice.
  • 20. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Underestimation of life expectancy Average individual life expectancy
  • 21. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Legislative agenda and regulatory oversight  Both will continue to shape the landscape for retirement.  Issues about coordination between FCA and TPR.  Possible differences between the legislative agenda and the regulatory one.  Timeframes to prepare for the new freedoms are tight.
  • 22. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Summarising the risks and opportunities
  • 23. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Summarising the risks and opportunities Opportunities: Reforms result in consumers better able to meet changing income needs throughout retirement: Consumers can optimise investment strategies. Room for innovation in financial products to meet consumer needs. Opportunity to create advice models for the mass market. Consumer risks: Reforms result in consumers having less income in retirement. This could be because: Consumers unwittingly becoming exposed to high risk investments and products. Consumers decide to spend it all today. Consumers are apathetic in the face of complexity and do nothing.
  • 24. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. What needs to be done to maximise the opportunities?  Effective innovation in products and services.  Increased consumer engagement in advance of retirement.  Guidance to address behavioural biases.  Advice models for the mass market.  Regulatory approach to welcome innovation but wary of the economic and behavioural risk drivers.
  • 25. The International Longevity Centre-UK is an independent, non-partisan think-tank dedicated to addressing issues of longevity, ageing and population change. Many thanks Ben Franklin Research Fellow International Longevity Centre - UK benfranklin@ilcuk.org.uk 0207 340 0440 Twitter: @ilcuk
  • 26. Dean Mirfin Group Director Key Retirement Solutions This event is kindly supported by Prudential #risksandopportunities
  • 27. Andrew Tully Pensions Technical Director MGM Advantage This event is kindly supported by Prudential #risksandopportunities
  • 28. Tom Boardman Deputy Chair NEST This event is kindly supported by Prudential #risksandopportunities
  • 29. Discussion and Q&A This event is kindly supported by Prudential #risksandopportunities
  • 30. Jane Vass Head of Public Policy Age UK This event is kindly supported by Prudential #risksandopportunities
  • 31. Michelle Cracknell Chief Executive The Pensions Advisory Service (TPAS) This event is kindly supported by Prudential #risksandopportunities
  • 32. Discussion and Q&A This event is kindly supported by Prudential #risksandopportunities
  • 33. Retirement Income: Risks and Opportunities Monday 16th June 2014 This event is kindly supported by Prudential #risksandopportunities