Our poll of trustees and sponsoring employers on the changes from the Budget

We recently ran a high level breakfast seminar to discuss the pensions revolution kick-started by George Osborne in March.

During the sessions we surveyed the attendees to gauge their views on some of the pertinent issues.

Our poll found that:

100% support the government’s decision to expand pension flexibility.

This is perhaps no surprise. Increased freedom and choice is nearly always universally welcomed, despite the short period of flux that we have to go through to get there.

68% expect defined benefit (DB) members to be tempted to take their transfer value and convert to defined contribution (DC) to access flexibilities.

This is surprisingly high and only time will tell if this view is borne out. If the government decides to ban transfers from DB to DC from April 2015 (and we have received strong indications from HM Treasury that if they do bring in a ban it will be from that date) this could create a “buy it now while stocks last” style firesale. However, if the government does not ban the transfers it will be interesting to see the steady state numbers. It is hard to think that many members will transfer as they will risk losing the guaranteed income, which surely remains very valuable.

90% of attendees think that individuals will act prudently in retirement.

This has certainly changed from my early conversations with employers who were very worried that their members could make more decisions in retirement. It is here that the guidance guarantee will be crucial in ensuring members consider their own needs and don’t underestimate their longevity – otherwise there could be a lengthy wait for a Lamborghini (or Aston Martin...).

73% expect annuities to remain a key part of retirement planning.

This certainly echoes our view that the need for a guaranteed income during retirement will be highly valued by individuals. There is no doubt that the frequency or size of annuity purchases will decrease and it is likely that many individuals will use some of their DC savings to purchase an annuity at some point.

14% support a government ban on transfer from defined benefit to defined contribution.

This is interesting as restricting freedom to just DC only members seems to go against the government’s ideology and is perhaps driven by the fear of the impact on the economy by the possible exodus from long-dated gilts.

What should employers and trustees be doing?

The wide-ranging changes in the budget mean that trustees and sponsoring employers need to move from ‘wait and see’ to taking action. Top of their list should be the need to review their default investment strategies to ensure that they remain relevant for the majority of their members. This is especially so when typically the vast majority of the members make use of default strategies.

Sponsoring employers should also review the benefit structures in their DB schemes to ensure they remain fit for purpose in the changing world. Members use of trivial commutation and additional voluntary contributions are going to change with the Budget’s changes to the way members will structure their retirement income. By reviewing the schemes’ benefits employers could realise long-term cost savings as members have access to the fullest range of options as possible. In many cases rules will need to be changed and this work should begin sooner rather than later.

David Brooks
Technical Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk