Lamborghini’s, annuities and getting out of bed

Phil Ralli, Head of Platform Proposition at Aviva, wonders how the reforms will affect pensioners and the industry alike.

In March last year, George Osborne delivered his Budget statement, setting out plans to shake-up the pensions market. Since then, much has been (and still is being) made of the impending death of annuities - in favour of Lamborghinis, kitchens or the like.  

Osborne’s shock announcement removing the requirement to buy an annuity sent life company share prices tumbling, illustrating the surprise - and concern - felt by the market over what this meant for the future. In the months since, pension providers, financial advisers and anyone approaching retirement have been wrestling to work out the best way to change their strategies (or not) in light of the reforms.

Putting the short term uncertainty to one side, I think the pension industry will benefit from the overhaul. At Aviva, we have long campaigned to make sure customers get the best retirement income they can. And, as long as we can collectively get all the final ‘i’s dotted and ‘t’s crossed in time, we’re in favour of the reforms. We believe it is a sensible step to delivering a framework giving customers more flexibility and choice.

As the UK relaxes restrictions, Australia looks at tightening them

It’s interesting that, as the UK moves towards relaxing restrictions around accessing pension savings, the Australian government is giving an airing to the potential benefits of compulsory annuitisation. For more than 20 years, Australia has had a system of compulsory workplace pension contributions (similar to our auto-enrolment). Now, they’re reviewing how the system could better meet the challenges of an ageing population.

As with the UK and many other developed nations, Australia’s ageing population will put pressure on state pension funding as more individuals rely on that income while the workforce funding it shrinks. Compulsory annunitisation is just one of the options the Australian government is considering. But the fact remains they see a need for some reform to the system to make sure individuals don’t outlive their retirement savings.

Our government has decided the answer is to give individuals more control over their own pension pots, rather than less. But with pension freedom, comes pension responsibility. There’s a growing need for retirees to protect themselves and their savings pots against longevity and investment risks if they are to have a comfortable life in older age.

Will people really blow their pension fund?

A few people will doubtlessly want to blow their pension pot as soon as possible (Steve Webb’s Lamborghini buyers). They may end up relying solely on the state pension, but perhaps we’re more nervous than we need to be about the rest. My money is on the vast majority of people still using their private pensions – money they have saved throughout their working life – to fund their lifestyle in retirement.

Exactly how and when they go about doing that might start to change as people work longer. But we’re confident demand for products offering an income in retirement until death will remain. We believe annuities, along with income drawdown in some form or other, will continue to play an important role in providing an income for life.

One thing is certain whatever happens. Helping people access the right information and good value products that meet their individual needs is more important than ever. With greater choice and flexibility, more and more retirees will face complex issues such as pension transfers and tax planning. So advice will play an increasingly significant role.

Working together, pension providers and advisers can make sure individuals enjoy their new pension freedoms without risking poverty in their old age. I don’t know about you, but that’s enough to get me out of bed every day.

Find out how Aviva can help you this tax year end

With the unprecedented changes to pensions, this tax year end offers more opportunities for you and your clients. We’ve pulled together a range of material to help you when you’re talking to your clients about what pension freedom means for them. Visit Aviva for Advisers to see what we’ve got to offer.

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