The National Association of Pension Funds (NAPF) today (Wednesday) commented on the Budget 2014. Joanne Segars, Chief Executive, NAPF, said:
“Today’s announcement is perplexing. Automatic Enrolment, one of the largest and most successful reforms of workplace pensions ever seen, was introduced to encourage people to make good financial decisions about their retirement, because experience tells us that people are often ill-informed and make poor decisions about financial planning for old age.
“On the one hand the idea that savers can take their pension as a lump sum, albeit subject to tax, may be an incentive to save. However, this choice brings with it a significant burden of responsibility for individuals to understand the choices they are making. We know this is not always the case as people often underestimate how long they will live and overestimate how long their pot will last1. There is a recognised problem with the lack of financial literacy in the UK and there is a distinct lack of detail in today’s announcement on how the Government will ensure people have access to good impartial advice so they make the right decisions about their income for retirement.
“There are many unanswered questions in today’s announcement - not least how a free impartial guidance service will be established within twelve months. Additionally, the effect on defined benefit schemes will need to be tested as the cost and funding implications for these schemes could be significant.
“It is concerning that there appears to be little robust modelling to reassure us the Government has understood the risk that a number of people will run through their pension pots far too quickly. We fear these reforms, without careful scrutiny, will leave a large swathe of people vulnerable to poverty in old age. ”
Notes to editors
The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
1 Source: “Expectations and experience of retirement in Defined Contribution pensions: a study of older people in England November 2012”. Comparing individuals’ implied life expectancies with official cohort life expectancies, people appear to be somewhat pessimistic on average. Men (women) aged 50–60 underestimate their life expectancy on average by around 2 (4) years. On average, defined contribution pension holders’ expectations of income in retirement appear somewhat optimistic. At prevailing annuity rates, the median individual would need to accumulate a further £20,200 on top of their existing defined contribution fund to achieve their expected pension income, even assuming they do not take a lump sum on retirement. The median percentage increase in fund value required to achieve the expected income is 77%.
Lucy Grubb, Head of Media and PR, NAPF, 020 7601 1726 or 07713 073023, [email protected]
Eleanor Bennett, Press Officer, 020 7601 1718 or 07825 171 446, [email protected]