Last week George Osborne announced in his post-election Emergency Budget that he will be looking for ways to increase saving, rather than having "an economy based on debt". He indicated pensions could be treated now like ISAs, being taken from taxed income. His plans also include cutting the tax allowance for high earners to £10,000 and publishing a green paper on how pensions can be further reformed.
I spoke to Rod Bryson, Principal (Wealth, Long Term Savings and Insurance) at Capgemini Consulting, to find out what those changes could mean for consumers if implemented.
“Between the tax treatment and the various rules and regulations, the system needs to be simplified significantly to enable greater engagement by consumers with their retirement saving,” said Bryson. “Simply put, very few people understand pensions which shouldn’t be the case given the amount of money invested within the system.
“I often hear people use an automotive analogy: cars are extremely technical, but we all have a general understanding of how they work, so it’s not a cause for concern. However, cars are a tangible asset and consumers have an inbuilt perspective of their respective value and how they are able to use it. That is simply not the case with a pension. Consumers understand ISAs, and even stocks and shares ISAs as the rules are simple.
And what would those changes mean for pension providers and advisers?
“Consumers are increasingly wanting online engagement to be successful, so having a simple suite of online product solutions will be critical in a dynamic digital market place”, Bryson continued. “This means consumers are likely to be far more engaged and also provides an opportunity for advisers and product manufacturers to focus more time on engaging with consumers. They’ll be able to help deliver positive customer outlines for their millions of customers through increased communication and service around their needs.
“There is clearly a challenge though to existing pension solutions, in terms of their sustainability and the impacts that retirement freedoms are already having. However, greater engagement through an ISA retirement solution and flexible retirement options provide a major opportunity for the industry to embrace the challenge. What’s more, providers will be able to protect the value of funds they are managing by supporting consumers by being more engaged and offering simpler solutions and flexibility. The development of a Pensions Dashboard would be an incredibly helpful addition to further support how consumers can understand their current pension pot values and how they can build on these through simple retirement saving solutions.
"A challenging road ahead but potentially significantly better outcomes for consumers to be better prepared for their retirement future and realising the actions they need to take throughout their lifetime, not just in the latter years, is better for their welfare and the country overall.”
Learn more about how insurers can achieve customer-centricity here https://www.uk.capgemini.com/insurance