While it may be too early to gauge the true success of pensions freedom, there are four issues the next government will need to address, according to a panel at this year's Morningstar investment conference...
Made up of Hargreaves Lansdown head of retirement Tom McPhail, Royal London director of policy Steve Webb and Tax Incentivised Savings Association (TISA) deputy chairman Tony Stenning, the panel debated the successes and shortcomings of former chancellor George Osborne's pension reforms.
First announced in the 2014 Budget and implemented the following year, the reforms allowed all savers to flexibly access their pension savings from age 55.
While the panel identified a number of benefits, it gave four areas the new government will need to tackle following the General Election on 8 June...
1. Revisit FAMR
McPhail said to help pension freedoms succeed the Financial Advice Market Review (FAMR) would need to be revisited.
He said FAMR had "unfinished business" as it had so far failed to help the industry offer affordable advice for the mass market. "It is looking increasingly like a missed opportunity," McPhail said.
"Where I think there was hope that the Treasury and the Financial Conduct Authority (FCA) would help us provide advice, that looks increasingly unlikely given the way that FAMR is playing out."
FAMR recommendations were released in March 2016, outlining a number of steps the industry could take to close the ‘advice gap'.
But even FCA chief executive Andrew Bailey has doubts about FAMR's ability to close the advice gap, he said last July.
2. Revisit structural issues
McPhail said the pension system had "structural issues" that needed to be resolved to help the effectiveness of the reforms.
He said: "For those people who want to draw down some money and then return back to work later, the money purchase annual allowance (MPAA) could cause a problem."
The MPAA is the amount of money that can be paid in one year to a pension pot tax-free once people start accessing funds from a flexi-access pension.
The government plans to reduce the allowance from £10,000 to £4,000 but has decided to delay the reduction until after the General Election.
3. Plugging the engagement gap
Stenning said consumer engagement with pension saving was still falling short.
But the problem could be solved by focusing on communicating the benefits of employer contributions in auto-enrolment, instead of tax relief, which many people did not understand.
He said: "People don't understand nudging with tax relief but they do understand matching savings with employer contributions."
4. Financial decisions in later life
Meanwhile, Webb said the new government and industry would need to consider how to help people much later in life.
"It's ok to make decisions about your finances at 60 but what about in your 80s," he said.
Many of that age group were unable to make financial decisions for themselves, he warned.
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