Times are changing in the world of retirement finances. April’s pensions freedoms have altered the industry beyond recognition and I recently attended the Equity Release Council’s Great Retirement Money Debate, chaired by the BBC’s Paul Lewis, to discuss just how different things will look in the months and years ahead. Of course, nothing exists in isolation, and those freedoms shook up more than just pensions.
By changing how people can access their pension pot and by altering tax rules, retirement is now less of a ‘one-hit’ process at 65. It’s also changed how we should think about wealth such as property and inheritance.
This is a big shift in mindset. And in the run up to April, much of the focus was on how consumers would react to the new options available to them. But so far, rather than grabbing their cash and hot-footing it to the nearest Lamborghini garage, retirees seem to be keeping their powder dry.
Why is this?
The answer might lie in the supply side, as retirees are looking out into a market still populated by products developed for the old landscape. Not that this is surprising only six weeks in – product providers need time to get used to the new world as well.
But panellists at the event were largely in agreement on two key points.
Firstly, on the need for product innovation.
It’s broadly accepted that the days of reaching 65, stopping work, drawing your pension, and enjoying your retirement are long gone. More likely now is a ‘phased’ retirement, where an individual slowly reduces the amount they work, continuing to earn and save. With mainstream lending proving more difficult for retirees to access, asset-rich/cash poor individuals with more wealth in their property than in their pension will look for ways to tap into that – either as a lump sum or for regular income. New products to match this new behaviour will be needed.
Secondly, on the need for these products to be communicated effectively to customers.
Put simply, this new retirement income landscape is a lot more complex. New assets are coming to the fore while new changes to tax rules are bedding in. It all means that retirees will have big decisions to make potentially from their 50s, when planning for retirement may start, right into their 70s or 80s as circumstances and requirements will change.
Effective communication will be more critical than ever before. How will this be achieved? For the retirement industry, it means products which are jargon-free, easy to access, and fit with the lifestyles retirees of the future will lead.
There will also be a vital role for financial advice. In this new world there is more power than ever before in the hands of consumers but in many cases it will be down to advisers to navigate them through the decision-making process and help them make the most of their retirement.