The pension reforms announced in George Osborne’s 2014 Budget gave savers new freedoms. They marked the end of a paternalistic system, where the government dictated how your money was used in retirement, and completed a shift in responsibility for pension savings and retirement income from the state and the employer to the individual.
This, however, comes with risk and complexity. With the move from final salary to defined contribution schemes, employees and not employers bear investment and longevity risks. The end of compulsory annuitisation means that people can choose to cash in their pension pot, invest their money in funds, or stick with annuities. Auto-enrolment and job mobility mean that, on average, you could end up with 11 different pension pots, according to the Department for Work and Pensions. We need a step change, therefore, in the support available to help people navigate their way through a minefield of complex products and choices.
In a paper I published this week with the think tank Reform, I have set out proposals for a RetirementSaverService that build on Pension Wise, the guidance service to be offered by the government. The RetirementSaverService would include two complementary elements: a single view of your wealth, aggregating all your pensions and savings, even if they are with different banks, insurers and asset managers; and a suite of tools to help people convert their aspirations for retirement into a plan for saving. The RetirementSaverService would empower everyone to make better decisions about saving and retirement across their lifetime.
This will force a decisive shift away from old patterns of doing business, where consumers had to track each of their pensions and savings accounts, while battling against a blizzard of paper. We should be using leading-edge digital technology to put the customer, and not their bank or insurer, in charge of their savings.
This is already happening across Europe. Minpension is an online service that all Swedes can use to track the value of their state and private pensions. The Pensions Dashboard helps the Dutch do the same thing. Here, banks can provide a snapshot of all your savings with them, and IFAs can do this for their clients. The RetirementSaverService would make a broader and deeper offer, by giving the same service to everyone – and for all their savings, private pensions, and state pensions. Using this information and a new suite of digital tools, the RetirementSaverService would enable people to work out their desired lifestyle and income in retirement, and then how much they need to save to achieve their aspirations. These tools would address issues like longevity, risk appetite, and investment preferences.
The RetirementSaverService will need to marry the sharpest insights in financial services with the consumer engagement skills of world-leading online services to empower people to take control of their money. It will provide the tools and information people need to make the best use of their new-found freedoms and responsibility; giving them security and dignity in retirement.