Pension freedoms and the decumulation conundrum

Financial Advisory

21 April 2016

Financial Advisory


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Facilitated by: Colette Dunn, Milliman

Expert: James Tothill, Aviva Investors

Written by: Jenny Schuster, Owen James Group

Headline Finding 1:

In the post pension freedom climates, we are seeing a greater focus on withdrawals. A comment was made by one participant that the majority of pension pots have been cashed in to pay for debt, mortgages, lifestyle or other investments. 

Headline Finding 2:

There has been a loss of trust in the government whereby people are moving towards savings rather than pensions, and we are seeing an increasing amount of investment in property.Government and work contributions are seen as too low and people are having to plan for their own futures.

Headline Finding 3:

Retirement is no longer about pensions, but are pensions about retirement? Pensions can provide a tax efficient savings solution for clients even if they have no intention of retiring. More and more people are ‘going from work to the grave’.

Headline Finding 4:

Dealing with the insistent client is still seen as a challenge. However, a comment was made that the FCA has indicated that providing there is sufficient documentation that you had your client’s best interests in mind and advised them on the potential repercussions of following their wishes, you will not be prosecuted.

Headline Finding 5:

Pension Freedoms have not caused as much upheaval as one may have thought. Research by Aviva investors has indicated that approximately 43% of people have left their pension pots untouched. However, 48% of respondents indicated that they were unsure if their pension pot was suitable and a comment was made that many are getting pushed towards buy-to-let as opposed to pensions.

Headline Finding 6:

Are people allocating enough to their pensions? Currently it is at the rate of 3.5%-4%. However, this could prove troublesome in the current low interest market. In addition, people do not have enough capital and therefore are looking to draw down.

Headline Finding 7:

New tools can help. Twenty years ago people needed to create tools, but now product providers have made it easier to put together packages.

Headline Finding 8:

In terms of managing volatility and longevity, it was stressed that you need to have a good understanding of the client and what type of solution suits them best. Factors such as health and age of the client need to be taken into consideration when calculating cash flow planning and types of solutions and diversification. In addition, the client needs to have a clear understanding of the solution they are opting for.

Headline Finding 9:

In response to the question as to whether there is a market for deferred annuities in the UK, the attendees were not convinced this was suitable. One person commented that the annuities market is unlikely to take off in the post pension freedoms climate. However, it was commented that there is room for DB pensions to be taken out and locked into annuities