KPMG has today welcomed the further clarification from Her Majesty’s Treasury on its retirement income reform consultation ‘Freedom and Choice in Pensions’, and warns that these changes will require swift action from pension providers in order to comply.
Commenting on the changes, Phil Smart, UK head of insurance at KPMG, said: “The Treasury’s clarification on its retirement income reform proposals is a welcome step and provides the further clarity life insurers need to begin to adapt to the changes.
“Customers will benefit from greater access to new options that are tailored to their retirement needs and are flexible to their changing lifestyles. For instance, the ability to cater for further contributions whilst in drawdown. While the changes may make options such as drawdown more attractive to some customers, annuities will continue to play an important role for many others.
“The decision to allow insurers to make cash options available without opening-up their legacy products to offer full drawdown flexibility is very sensible. While this is a good opportunity for insurers to innovate and develop new products, they will face significant challenges to implement the required infrastructure and operational changes before next April.
“We support initiatives to offer more flexibility including more flexible annuity products that allow customers to plan their retirement income so as to dovetail with occupational and state pension benefits and provide for long-term care needs. This will enable insurers to design new annuity products that provide savers with both security and flexibility.”
In response to the announcement that guidance will be delivered through a utility model, Trevor Jones, insurance partner at KPMG, added: “We welcome the introduction of the guidance guarantee which will go some way to providing customers with information and support. In many cases the information provided will prompt savers to seek more detailed guidance and advice which they need to make informed decisions taking account of their personal circumstances. As such, we anticipate that individuals will seek support from those they trust, and there will be an increase in demand for paid-for, independent financial advice, increased requests for support from life companies and increased requests for help from the many money advice services available.
“Insurers and existing stakeholders must adapt their existing processes and offerings to promote and complement the guidance guarantee.
“In conclusion, these changes present an opportunity for insurers to demonstrate both that they can develop products that are adapted to changes in regulation and customer demand and provide good value. We welcome these changes and wider initiatives to promote and encourage higher levels of pension savings. However with the 1st April 2015 deadline looming; firms must act quickly in order to comply.”
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KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.