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Your Later Life 2020

Evolution of the pension freedoms

Lizzy Holliday

Head of DC, Master Trusts and Lifetime Savings, PLSA

It was back in 2015 that we saw the launch of game-changing Pension Freedoms Act. Suddenly, retirees had a multitude of options to consider. Now, five years on, how successful have they been?

Freedom is an attractive concept, and there is an intuitive fairness in enabling savers to directly access and make decisions about what to do with their hard-earned and saved money.

But, in practical terms, how has it worked out for savers? And, from the point of view of the PLSA mission ‘to help everyone to achieve a better income in retirement,’ how is it measuring up?

Freedoms and risks

The pension freedoms mean that, rather than usually having to use defined contribution (DC) savings to purchase a ‘lifetime annuity’, people can instead access their DC pension savings as cash.

They can also invest, or ‘drawdown’ regular or lump sums, or purchase an annuity.

Five years since the freedoms were launched, debate about their suitability and effectiveness continues.

The new options shift a number of risks onto the individual in retirement. For example, the possibility of running out of income, ongoing exposure to stock market fluctuations, and potential diminished decision-making capabilities needed to manage these products, are all down to the individual to take on.

What are savers doing?

While the real impact of these risks will be borne out in years to come, studies of trends and behaviours indicate a significant shift away from lifetime annuities and over to flexible drawdown.

Prior to the reforms, 90% of pension pots moved into annuities in the decumulation phase.

By June 2018, FCA reported that twice as many pots were moving into drawdown than annuities with 2019 figures suggesting the downward trend in annuity sales has continued.

The total value of flexible withdrawals has risen steadily, and now exceeds £35 billion.

Supporting all savers

One of the challenges for achieving good outcomes and successfully supporting savers is the historic and current low level of savers engagement with their pensions.

In a context where the greatest success in getting people into a pension has been achieved through harnessing the power of inertia, demanding complex decision-making and risk-management at retirement is a significant contrast.

Addressing education and advice gaps is part of the solution – but may not be sufficient for all.

The system at retirement should work for those who don’t know much about pensions, or who are concerned about making the right choice, as well as those who have detailed plans and have confidence in knowing their options.

This is why we have been seeking to further develop a new approach that speaks to the type of engagement we see in reality and mitigates some of the risks for savers.

Evolving pension freedoms and guiding savers

In Hitting the Target, the 2018 report that set out the PLSA’s vision for achieving income adequacy for all, we recommended – following extensive consultation – proposals called ‘guided at-retirement decisions’.

Put simply, this is a way of schemes signposting savers to specific financial product options where they don’t offer decumulation products themselves. This provides savers with a helping hand on their next steps.

In addition, we proposed a set of standards for what those ‘signposted’ products should offer, to address some of the key risks to savers in respect of retirement incomes.

The idea is that, a few extra ingredients to support the freedoms would improve the experience – and the quality of outcomes – for a wider range of savers.

Five years since the freedoms were launched, debate about their suitability and effectiveness continues.

This year, we are publishing more detailed proposals to implement our ‘guided at retirement decisions’ policy, which seek to evolve the freedoms by supporting schemes to deliver more support for savers and to better manage the risks in the system.

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Home » Pensions and Finance » Evolution of the pension freedoms

Why the best partnerships are strategic ones

Elisa Moscolin

Head of Sustainability & CSR, Santander UK

Charlotte Matier

Director of Development, Alzheimer’s Society

Hannorah Lee

Director of Partnerships, Age UK

When businesses and charities work in partnership, they can pool their expertise, find effective solutions to complex issues and drive systemic change.

These days, most forward-thinking organisations and companies understand the importance of acting sustainably and responsibly.

In order to achieve this ambition and thrive, businesses need local communities and the wider society to prosper too.

Indeed, we know that ‘no business can ever succeed in isolation’, insists Elisa Moscolin, Head of Sustainability and Corporate Social Responsibility at Santander.

The importance of partnership

To make a real difference in this area, effective teamwork is needed with other stakeholders who are experts in their respective fields.

For example, to improve the lives of older people and those affected by dementia and ensure they have better access to financial services, Santander and the charities Alzheimer’s Society and Age UK have formed a strategic partnership.

The charities advise us on how to best support older people and those affected by dementia. So, when COVID-19 struck, the bank was already using their expertise to support and respond to our customers’ needs.

The operative word here is ‘strategic’. Many organisations will partner up with charities, but offer arm’s length support, such as donations.

There’s nothing wrong with this because charities need the financial support to deliver their vital work, notes Moscolin, but her organisation wanted to do something over and above cheque-writing.

Working as ‘one’ makes a partnership stronger

“We’re always asking how we can better serve an ageing population and people living with dementia to empower them to stay financially independent for longer,” Moscolin says.

“We’re not experts in dementia or later life, but the charities are. By working as one, we can make the most of our different areas of expertise and, together, find effective solutions to complex issues.”

One outcome has been the creation of a steering group — made up of people living with or affected by dementia — to make sure the bank’s products, services and process are dementia friendly.

In developing this type of initiative, it’s not enough for strategic partners to be close, says Moscolin; they must identify as a collective.

Alzheimer’s Society and Age UK have seconded staff to work within Santander to influence and drive change across the bank.

The charities also participate in team meetings. “We realised that if we work as one, our partnership will be stronger,” says Moscolin.

An effective way to make big improvements

The trust and respect fostered by this way of working allows the charities to speak “as critical friends” to the bank.

“Because we’re a team’, we’re able to ask: ‘OK. We’ve hit a brick wall. How do we collectively go around this?’” says Moscolin.

Having a strong strategic relationship also helps during a crisis. “The charities advise us on how to best support older people and those affected by dementia. So, when COVID-19 struck, the bank was already using their expertise to support and respond to our customers’ needs. In partnership with the Santander Foundation, we also offered support to the charities to help vulnerable people in our communities.”

“All three partners have big ambitions,” says Hannorah Lee, Director of Partnerships at Age UK. “We all want to build a better world for people who are most in need and we recognised that working strategically is our best chance to drive big, systemic change.

“If we can influence the way an organisation works with other people and harness its skills to help us achieve our objectives, we thought it was the obvious thing to do.”

Why strategic partnerships are the future

Charlotte Matier, Director of Development at Alzheimer’s Society, agrees. “Other organisations will see there’s a different style of working with charities that goes far beyond fund-raising — one that adds commercial value and improves the experience of customers. It is not just a socially responsible step to ensuring that people are embraced and understood. There is a clear economic case demonstrating that dementia-friendly businesses are more successful in retaining and attracting customers.

“There’s also a bit of peer pressure. Do you really want to be the only company working in your industry that isn’t dementia inclusive?”

This type of private sector/third sector strategic partnership is still relatively rare, but it’s the future say Lee, Matier and Moscolin.

“Obviously, we want to be a commercially successful organisation, and we want to do that by being a responsible and sustainable bank. This means taking a broader, holistic view to make sure our commercial decisions are also socially and environmentally sound.

“Working in strategic partnership with charities has done that by changing the way we think and operate” concluded Moscolin

For more information about Santander, Alzheimer’s Society and Age UK’s strategic partnership, access www.santandersustainability.co.uk/partnerships

Santander UK plc. Registered Office: 2 Triton Square, Regent’s Place, London, NW1 3AN, United Kingdom. Registered Number 2294747. Registered in England and Wales. www.santander.co.uk. Telephone 0800 389 7000. Santander and the flame logo are registered trademarks. Copyright © Santander UK plc. All rights reserved.

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