UK long-term savings gap must be urgently closed, warns KPMG report

UK long-term savings gap must be urgently closed

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.


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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 report welcomes the reforms but goes on to highlight four key challenges which need to be addressed for the good of all current and future pensioners.

  • Policy – The report calls on the Government to provide a clear, sustainable and joined-up strategy to encourage long-term saving. It highlights there have been 15 significant changes to pensions policy in the past 17 years with more change on the cards, particularly given the current review of pension tax reform. Britain needs a stable long-term policy framework.

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.

  • Customer Engagement – Given the historic backdrop of DB pensions, which require little engagement from employees, the pensions industry encounters customers with low levels of understanding and interest in its products, and who lack awareness of how much they need to save. Engagement cannot be achieved purely by forcing consumers to make decisions.
  • Innovation – Will be needed both in the products offered and the ways customers are helped to access advice and guidance. The latter is likely to result in the development of new models such as digitally enabled, automated advice technology, also known as “robo-advice”, to serve the mass market. Getting to grips with the regulatory challenges will be critical.
  • Business Strategy – The reforms mean tomorrow’s pension environment will be materially different to today’s. Firms will need to balance the demands of complying with legislative and regulatory change against the need to develop a long-term competitive strategy. 

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:

  • Too early for ‘new normal’ - Although providers saw a ‘dash for cash’ in the early days of the reforms, there are indications this initial peak has passed and customer demand is settling. However, it is too soon to define the ‘new normal’.
  • Withdrawals low – The amount of additional cash withdrawn in the first 3 months, specifically as a result of the reforms, is less than £1 billion (where tax free cash and pre-existing drawdown is excluded), representing less than 1 per cent of the value of pension funds held by over 55s that could theoretically have been withdrawn.
  • Bank accounts not sports cars - Contrary to the headlines about pensioners spending their money on sports cars and holidays, the industry’s bigger concern is customers withdrawing their money and leaving it in tax-inefficient, low-rate current accounts.
  • Annuity market changing - While overall annuity volumes have fallen, the average pension pot being used to buy an annuity has increased by 69% to £54,590, suggesting that the annuity market is evolving.

The report is available upon request.


Notes to editors:

For further information please contact:

Simon Chan, PR Assistant Manager, KPMG

T: +44 (0) 207 694 2024

M: +44 (0) 7747 564 737


KPMG Press Office: 020 7694 8773

About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 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.

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