The reputation of the retirement and pensions market has never been so low, writes Ed Dymott. The industry can and must do better...
The recent Financial Conduct Authority (FCA) thematic review into the annuity market makes somewhat depressing reading. Although not overall surprising in its output, it points towards a number of issues which have been systemic in this market for some time.
The underlying conflict that arises between the provider and its customer has led to poor outcomes for too many retirees. For this reason, we fully support the FCA's findings and would encourage action soon.
The reputation of the retirement and pensions market has never been so low.
The pension system continues to be a political pawn, where policy continues to be debated which unfortunately risks continuing to look to reduce the benefits of the pension system.
The sound bites emerging from the regulator will do nothing to convince the significant, but also growing number of people reaching retirement age that they will be well provided for.
Added to this, there remains the constant debate around charges and the fact that investors are reportedly being "ripped off" by the unscrupulous providers.
The introduction of auto-enrolment (AE) will see about ten million new pension savers over the next few years. This has the potential to transform the savings market, however, the timing of this, given the current views on the market, couldn't be worse.
AE will significantly increase the numbers of savers but for many, pensions remain irrelevant based on the myriad issues faced, especially by the younger generation. The question of a pension falls pretty low down the list of priorities for the under 35-year-olds who want: job security, a mortgage and a balanced lifestyle.
That said, the fact that there are lower levels of opt-outs among younger cohorts of pension savers shows either that they are grateful that someone is helping them save for the future or, more cynically, points towards apathy and a lack of engagement.
The retirement market also fails the older generation. Those lucky enough to have larger pots are now increasingly constrained by lifetime allowances. Those not so fortunate are increasingly reaching retirement with the realisation that their hard earned savings will provide far lower benefits than expected.
The UK has been "brainwashed" into thinking that when you reach retirement the answer is to buy an annuity. But retirement is not what it used to be – as retirees live longer, in better health and with higher expectations, income needs are changing.
For the older retirees, there is the increasing need for provision for long-term care. The flat, or even inflation-linked, nature of an annuity is no longer appropriate. If you are wealthy, in good health and in early retirement, why would you buy an annuity?
Overall, I am concerned that the system we have built is increasingly becoming irrelevant. I am firmly of the belief that as an industry, we can do so much better in the retirement market. Whether you are a provider, an adviser or an investment manager, we are all aligned to the long-term outcomes our customers achieve – for most, this is achieving their retirement goals.
Too many customers are today being let down by this industry and we need to provide better choices approaching and in retirement. We need to engage with our customers in a way that is relevant and in a way that they understand.
We need to drive out poor market practice and deliver services which really are in the best interests of our customers, not just the company bottom line.
We need to provide better support and guidance for our customers in a way that is unbiased and provides good value. We need to evolve the policy debate so it moves away from just price but to value, and that is doesn't feel a need to meddle continuously with the system.
We need to provide the required flexible solutions that meet the very different and changing needs of our customers. Retirement has for too long been seen by the industry as a 'product'.
Instead, it needs to be viewed as an experience and a service. It should not be seen as a means to create a fast buck but instead to create and maintain long-term customer relations. We need to reinvent how we approach retirement.
Ed Dymott is head of business development at Fidelity Worldwide Investment
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