Reforms giving savers much greater flexibility over how and when they access their pension pots must be supported by a sustainable strategy to encourage more people to save more for their retirement.
That’s the conclusion of a new report into pension freedoms produced by professional services firm KPMG in collaboration with the Association of British Insurers (ABI).
The first of two in-depth reports into the future of the pensions world, ‘Freeing the future?’, is based on interviews conducted with over 40 leading individuals in the sector - including insurers, investment managers and former policymakers - as well as analysis from recent industry data.
The KPMG report states that the hoped-for strategy should be aligned with other areas of welfare and health policy and must be underpinned by clear regulation. It also emphasises the need for the Government and industry to cover the needs of the different savings generations, each of which has demonstrably different challenges and behaviours.
Andy Masters, UK head of savings and wealth management at KPMG, said:
“The industry deserves enormous credit for what it achieved with pensions freedoms given the tight timescales and complexity of implementation but there is a risk this becomes a distraction.
“Tackling the savings gap has to be the priority. If people aren't saving enough for their future it won't matter what their options are in terms of getting money out their pension. We’ve rarely saved less, with the UK savings ratio halving since 2012, so something needs to be done.
“It’s clear that the ‘one size fits all’ approach to policy is not working and is creating generational inequalities that will only continue to increase if the wider picture is not addressed.
“We’re already seeing problems with auto-enrolment erroneously leading some customers to believe that they are now saving enough for their retirement, and there is increasing awareness in the industry of the time-bomb we face as the next savings generation moves into middle age with lower pension savings and levels of house ownership. They can expect to be the first generation in modern times to retire on less than their parents.
“This is a unique time for industry players to step-up, be bold and to consider this challenge as an opportunity with the potential to accelerate healthy changes already underway.”
Yvonne Braun, Director of long-term savings policy at the ABI, said:
“Pension providers are strongly supportive of the pension freedoms and our members worked flat out to comply with all the legal and regulatory changes demanded of them in a very tight time scale. But the challenges do not stop now the new regime is under way.
“As this report helpfully sets out, providers, financial advisers and Government have to address important on-going issues such as the problem of poor consumer engagement and how innovation can be achieved in such a tightly regulated market place. As part of that, the ABI has started its own pension language project to simplify the way we talk to consumers about retirement and is engaging with the Government’s very welcome review into the financial advice market.
“The pension freedoms should be able to play an important role in helping retirees shape their income to suit their financial needs over the rest of their lives. However, people will only be able to benefit fully if they have been able to build up enough in savings during their working lives. Creating a stronger savings culture is therefore crucial."
Other findings include:
The report is available upon request.
Notes to editors:
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Simon Chan, PR Assistant Manager, KPMG
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