A resurgence of with-profits annuities combined with greater access to either financial advice, guidance or help could see the pensions industry achieve much better outcomes for savers.
The plans were one of several solutions discussed at the Pensions Administration Standards Association (Pasa) conference in the City of London yesterday (April 30).
In the session titled 'Rethinking later life solutions' Claire Altman, managing director, individual retirement at Standard Life, said annuities and drawdown are the binary choice for those nearer retirement and both products had disadvantages.
“If you haven’t bought index-linked annuities you might not get enough retirement income and if you choose drawdown then you may miss out if markets go down.”
Non binary pensions
Altman said the lack of an “overarching” UK retirement strategy had resulted in reactive government policy based on “front page headlines” which were “followed one year later by legislation which worked in a confined space and did not answer the big questions.”
Altman said her brief was to come up with a solution which combined the guarantee of annuity with the promise of drawdown’s growth element.
She said: “This is not the best we can do. We should do better as an industry.”
Altman told delegates retirees should have products which provided them with a minimum guarantee that helped paid for the basics, such as heating and lighting bills, but also allowed for retirees to afford dinner out, holidays and to buy something for their grandchildren.
“And if markets don’t go as you thought it’s not the end of the world,” she added.
Altman said collective defined contribution (CDC) schemes were both “something and nothing”.
“They have a lot of promise, you are going to get a target benefit but not a guarantee.”
Altman then suggested the return of with-profits annuities might be another solution for the retail market.
She added: “We know how broken it [pensions industry] all is, but if we as an industry don’t do anything I have a worry for older people living in a society, where people are living a long time and we will need to know who is paying.”
Helping people with their pension choices
Anne Fairweather, head of public affairs at Hargreaves Lansdown, said pensions remained too opaque and that while free information and advice was available it was not always accessed in time.
“Pensions Wise is a great source of information but is only a starting point. When people access it quite often a lot of time is spent tracing pension pots and sometimes the help comes too late,” she said.
She claimed people chose to take tax-free cash not necessarily because it was the best option but because they understood what it was.
Fairweather said Hargreaves’ research found 12.2mn households needed to improve the adequacy of their pension provision, and these were households with reasonable savings and were not in arrears with any debt.
Educating employers
The panel agreed that employers should be part of the solution.
