Pensions in 2016: The top three priorities for the year ahead
2015 was a year of seismic change in the pensions industry, as new freedoms and auto-enrolment continue to shake up the landscape of long-term financial planning.
With the introduction of the pension freedoms in April 2015, employees were given far greater flexibility to draw down their pension pot how and when they choose. Despite it being well over eight months since the freedoms, many people are still unaware of just how much their options have broadened, never mind how to make the most of these new flexibilities.
Together with these changes, we have also seen a growth in the master trust market. We launched LifeSight in mid-2015 and, alongside us, there are now well over 70 providers in the market today, up from 36 in 2014.
As schemes and businesses continue to incorporate this evolving landscape into their offerings, I have set out my recommended priorities for the pension market in 2016:
Making pension freedoms a reality
As the industry emerges from the pensions revolution that was 2015, there will undoubtedly be a proliferation of new products and services aimed at facilitating choice as people are increasingly nudged towards taking control of their retirement planning. Both employers and trustees play a key role in helping members understand and access these freedoms, but there is much to be done in this area. For example, few pension schemes and funds are currently targeting drawdown as their default investment strategy, despite its popularity with members.
Whilst valuing the choice, people are increasingly turning to their employers for advice amidst what is popularly perceived as a complicated pensions landscape. In light of this, in 2016, employers and trustees need to engage proactively with members to help them to make informed retirement choices rather than poorly informed, irrevocable decisions that later come back to haunt them.
Settling the master trust market
I think that this year we will start to see the master trust market splitting into two camps: serious players and those that are unlikely to make it in the long term. Given the ease with which a basic master trust can be set up, there is growing concern that there is little consistency across the market in terms of outcomes and standards.
If we see compulsory MAF or PQM READY accreditations (both of which LifeSight was delighted to attain in 2015) announced by the Regulator then this will really help separate the wheat from the chaff, highlighting the credible providers who place robust governance at the heart of their offerings. We also expect that higher quality, diverse trustee boards will become the new standard to aspire to.
Cutting through the complexity
LifeSight research revealed that many people feel uninformed about pensions, and 75% of 18-34 year olds have little to no awareness of the Government’s 2015 reforms. We know people want to understand their finances better, we know they want to save for the future, but there are big decisions that people need to make now and many don’t feel knowledgeable enough to do it.
Companies and trustees should jump on any chance to get people talking, even just with friends and family, about saving for retirement. For example, auto-enrolment opened up a great opportunity to engage with everyone, whatever their age or income, about pensions. By cutting through the complexity of pensions, making their scheme as user friendly as possible, and keeping communication high on the agenda employers can help employees understand and get more involved with the decisions they need to make around their long-term financial planning.