Speaking in the 2014 Budget, the Chancellor of the Exchequer, George Osborne MP announced plans to “legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots”. He said that “Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. No caps. No drawdown limits”. In the Chancellor’s Budget Statement he stated plans to “introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.” Since the Budget, “advice” has become “guidance”, but the commitment to a better informed consumer remains. Over the next year, ILC-UK plan to undertake a range of activities to explore the impact of the changes announced by the Chancellor. Through research and a series of events, we will explore the risks inherent in the announcement made and highlight the opportunities. We will explore and model potential future scenarios and look to seek solutions which mitigate risks to the consumer whilst maximising the opportunities. ILC-UK began our work in this area by launching, with the support of Prudential, a discussion paper, Freedom and choice in pensions: risks and opportunities, which outlined the Government’s proposals to reform the market and highlight the types of choices that people will face and the support that might be available. Our analysis considered the possible implications of the reforms by looking at the take up of different products across different countries (including US, Denmark and Australia). We also incorporated a discussion of the vast array of literature on the so called “annuities puzzle” – the puzzle of why people fail to annuitise even if it represents the best option. Our paper considered how people currently use the lump sum option in the UK and how this differs by socioeconomic characteristics. Such analysis of how people use the lump sum could act as a rough proxy for how they will react under the proposed reforms, though the reality may prove different. Our paper also highlighted how we think people could react in the face of the new reforms and make some recommendations about what policy measures need to be developed to address the downside risks. At this event, chaired by Josephine Cumbo (FT), Ben Franklin (ILC-UK Research Fellow), summarised the planned reforms and set out the findings of our discussion paper. Dean Mirfin (Key Retirement Solutions), Tim Fassam (Prudential), Andew Tully (MGM Advantage) and Tom Boardman (NEST) gave short perspectives on challenges and opportunities. Following a discussion, Jane Vass (Age UK) and Michelle Cracknell (TPAS) concluded the event with their perspective on the debate.

1. Retirement Income: Risks and
Opportunities
Monday 16th
June 2014
This event is kindly supported by Prudential
#risksandopportunities

2. Welcome
Josephine Cumbo
Pensions Correspondent
Financial Times
This event is kindly supported by Prudential
#risksandopportunities

3. Tim Fassam
Head of Public Affairs
Prudential
This event is kindly supported by Prudential
#risksandopportunities

4. Ben Franklin
Research Fellow
ILC-UK
This event is kindly supported by Prudential
#risksandopportunities

5. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Freedom and choice in pensions
Risks and opportunities
Ben Franklin, International Longevity Centre – UK
@ilcuk

6. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
What am I going to cover?
 What are the reforms?
 What are the key factors likely to drive decision making and
their associated risks?
 Economic context.
 Products and advice.
 Personal/household behaviours and characteristics.
 Legislative agenda and regulatory oversight.
 Summarising the risks and opportunities.
 What key measures are needed to ensure success?

7. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
What are the new freedoms?

8. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The old tax system
Source: HM Treasury

9. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Where have all the boxes gone? The new tax system...to be
implemented in April 2015
Source: HM Treasury

10. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Key factors likely to drive decision
making and their associated risks

11. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The economic context…lower for longer

12. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Hoping for a significant reversal in monetary policy
any time soon is like clutching at straws
Recoveries from various recessions

13. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Implications for consumers…
 The search for yield will shape decision making.
 Could result in savers channelling pension wealth into
unconventional products.
 Lead to exposures on Buy to Let? Equity markets?
 Or, alternatively, individuals could opt for big ticket
items.
 Many will also use pension savings to pay down debt.

14. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Debt will remain a key part of the picture

15. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Products and advice
 Potential for innovation in products:
 Drawdown for mass market.
 U shaped annuites.
 Property.
 Other products…
But…increased choice will mean consumer engagement
and advice critical…

16. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
A quick word on property
Safe as houses? Inflation adjusted house prices can take
time to regain losses in value

17. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The need for advice…
 One-off guidance could leave people with more questions than
before.
 The “advice gap” – only around 30% of population has ever
taken financial advice (source: CII)
 Typically high net worth individuals
 But what about the rest of us?
 Need a mass market solution…
 Otherwise risk of poor consumer decisions and apathy in face
of complexity.

18. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
The advice gap

19. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Personal behaviours and characteristics
 Immediate rewards are hard to resist.
 People consistently underestimate their life
expectancy.
 Low levels of financial literacy.
 Tendency to buy low sell high.
 All could result in sub-optimal decisions and
underline need for guidance and advice.

20. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Underestimation of life expectancy
Average individual life expectancy

21. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Legislative agenda and regulatory oversight
 Both will continue to shape the landscape for
retirement.
 Issues about coordination between FCA and TPR.
 Possible differences between the legislative
agenda and the regulatory one.
 Timeframes to prepare for the new freedoms are
tight.

22. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Summarising the risks and opportunities

23. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Summarising the risks and opportunities
Opportunities:
Reforms result in consumers better able to meet changing income needs
throughout retirement:
Consumers can optimise investment strategies.
Room for innovation in financial products to meet consumer needs.
Opportunity to create advice models for the mass market.
Consumer risks:
Reforms result in consumers having less income in retirement. This could
be because:
Consumers unwittingly becoming exposed to high risk investments and
products.
Consumers decide to spend it all today.
Consumers are apathetic in the face of complexity and do nothing.

24. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
What needs to be done to maximise the
opportunities?
 Effective innovation in products and services.
 Increased consumer engagement in advance of
retirement.
 Guidance to address behavioural biases.
 Advice models for the mass market.
 Regulatory approach to welcome innovation but
wary of the economic and behavioural risk drivers.

25. The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Many thanks
Ben Franklin
Research Fellow
International Longevity Centre - UK
benfranklin@ilcuk.org.uk
0207 340 0440
Twitter: @ilcuk

26. Dean Mirfin
Group Director
Key Retirement Solutions
This event is kindly supported by Prudential
#risksandopportunities

27. Andrew Tully
Pensions Technical Director
MGM Advantage
This event is kindly supported by Prudential
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28. Tom Boardman
Deputy Chair
NEST
This event is kindly supported by Prudential
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29. Discussion and Q&A
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30. Jane Vass
Head of Public Policy
Age UK
This event is kindly supported by Prudential
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31. Michelle Cracknell
Chief Executive
The Pensions Advisory Service (TPAS)
This event is kindly supported by Prudential
#risksandopportunities

32. Discussion and Q&A
This event is kindly supported by Prudential
#risksandopportunities

33. Retirement Income: Risks and
Opportunities
Monday 16th
June 2014
This event is kindly supported by Prudential
#risksandopportunities