The year 2015 will probably be remembered as the year when the first results of the 2014 Budget experiment came in, and when it became clear that the effects of the changes would be felt far beyond retirement decisions.
After flooring MPs, commentators, and the long-term savings industry with the surprise announcement at Budget 2014, we can now stand back and review the initial results.
And so far, the chancellor’s rationale - to trust people with their pension pot, assuming that those who were prudent enough to save will also be prudent when they spend - has been endorsed by the outcomes.
Far from a mad ‘dash for cash’, the ABI’s statistics show smaller pension pots, on average £15,000, being withdrawn as cash, with larger pots, above £55,000 on average, still being used to buy retirement income products, roughly half and half annuities and drawdown.
In total, only a small percentage of the assets eligible for the pension freedoms have actually been withdrawn. The long-term savings industry has proved equal to the enormity of the task.
Providers coped well with unprecedented customer contact in the first few weeks of the freedoms, with call volumes up 80 per cent, and raced to change their systems to be ready for the go live date, having had only a year to prepare (and with much important detail only clarified hair-raisingly close to April 2015).
Compare this to the halcyon days of multi-year preparations for auto-enrolment and pension simplification, and you can see why there are a lot of people in the industry looking forward to the Christmas break.
And the dust hasn’t settled yet. The shake-up of pensions has unstuck another vital debate: the future of financial advice and guidance.
The lower than expected take-up of both Pension Wise and financial advice is unsustainable if we want to address the fundamental problem: under-saving.
We know that even with auto-enrolment in full swing, 12 million people are at risk of under-saving - as shown by the DWP’s scenario analysis of future pension incomes.
Nine million of those sit in the annual income bracket of between £22,700 and £52,000.
We will return to the appropriateness of the 8 per cent auto-enrolment rate in the auto-enrolment review in 2017, but reliance on inertia only to increase the savings rate can’t be enough - not least because it is incompatible with the ideas of freedom and choice which are based on engaged consumers.
What is needed is no less than a revolution in financial capability and engagement.
People’s financial capability remains stubbornly low, meaning that money is a source of worry and stress for far too many people, and it was heartening to see the UK’s Financial Capability Strategy launched in October to tackle this.
One important element of this is improving the support available to individuals through public financial guidance and financial advice.
The Financial Advice Market Review and consultation on the guidance services is a golden opportunity to simplify an overly complex landscape so that both regulated advice and information services, particularly PensionWise, can provide support to a much bigger part of the population, helping people to save more and be confident in making retirement choices.
