14Jan15 - Tackling Consumer Confusion

Tackling consumer confusion and

giving retirees what they want.

How can the wishes of consumers be

supported by the pension reforms?

Wednesday 14th January 2015

This research has been supported by Just Retirement, LV, Partnership, Key Retirement and EY

#pensionfreedoms

Welcome

Lawrence ChurchillTrustee

ILC-UK

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Ben FranklinSenior Research Fellow

ILC-UK

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Making the system fit for purpose

How consumer appetite for secure income could be supported by the pension reforms

Ben Franklin, Senior Research Fellow, International Longevity Centre@ilcuk @bjafranklin

“I really don’t know what my options are. I haveabsolutely no idea. Almost head in my arms, I’m relyingvery much on the professionals within the company thatI worked for to start me on the path of what’shappening.”

“I’m very innocent in financial matters. I just can’t bearto think about it. I don’t even know about how muchpension you can draw as a lump sum. Is that to do withthe State Pension?”

- Focus group participants

Building an evidence base

The problem

• Lack of consumer research tapping into consumerpreferences in light of new pension freedoms.

What did we do?

• Focus group sessions to identify possible issues facing thoseapproaching retirement.

• Commissioned YouGov survey of over 5,000 people aged55-70 not yet retired and yet to draw on their privatepension wealth. Approx 30 questions.

Towards a profile of those affected by the reforms

Pension seen as way to deliver income

Risk averse

Low level of financial capability

Positive about Guidance

Financial advice seen as key source of support

but many remain wary about accessing it

Pension as income

…pension as income (continued)

Risk aversion

…risk aversion (continued)

Low levels of financial capability

…low levels of financial capability

…underpinned by lack of planning

Views on Guidance Guarantee 66% of people with DC pot said they would take up the offer of

the GG.

Face to face favoured as the delivering method – 63% thought thiswould be the most useful. Online information came second – 20%.

“I wouldn’t necessarily do what they say but I’d be interested tohear what they say”

“I’m a bit concerned about the advice they’ll be giving, about thequality of the advice, will you be able to sue them if they give youbad advice”.

- Focus group participants

Financial advice seen as key form of support

…but trust issues act as a barrier for many

What are the implications?• Risk of mismatch between consumer preferences and the

choices they finally make.

• Driven by low financial capability, lack of planning and failure to seek professional financial advice.

• Guidance will be critical but will be far from sufficient given this consumer profile.

• Contingency plans urgently needed to support those who do not take up guidance and those who do but may still make poor decisions.

Many thanks

Ben FranklinSenior Research FellowInternational Longevity Centre - [email protected]: @ilcuk

mailto:[email protected]

The Rt. Hon the Lord Hutton of FurnessFormer Secretary of State for Work and Pensions

(2005-07)

Member of the Public Service and Demographic

Change Committee (2013 - 13)

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Dean MirfinGroup Director - KR Group

Key Retirement

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Targeting good

consumer outcomes

Dean Mirfin, Managing Director

Wealth & Retirement Income

23

Background

• Needed to focus on

understanding the consumer

• Getting to outcomes, not products

• Contacted EY and Ros Altman

and then ILC and likeminded

additional sponsors

24

What we discovered

• When facilitated people have a

good idea of what they are trying

to achieve, but…

• They don’t necessarily know how or

what will achieve this for them

• They need to understand more

about their options

• This will help consumers

understand the value of advice

25

What is a good outcome?

• A logical approach to the right outcome

• Three golden rules of retirement:• Make sure you have enough guaranteed income

• Where able, have some flexibility in case

circumstances change

• Understand all the risks and consequences, now,

not in the years to come

26

Good outcomes

Make sure you have enough

guaranteed income

Where able, have some

flexibility in case

circumstances change

Understand all the risks and consequences, now, not in the years

to come

27

Conclusion

• We believe that advice is essential to

ultimately deliver those good outcomes

Dr Ros AltmannUK Government's Older Workers Business Champion

#pensionfreedoms


FREEDOM AND CHOICE IN PENSIONS14 JANUARY 2015

Dr. Ros Altmann, CBE

Business Champion for Older Workers

Twitter: @rosaltmann

Website: www.rosaltmann.com

Blog: pensionsandsavings.com

http://www.rosaltmann.com/

PUTTING CUSTOMER NEEDS FIRST

Industry has provided default options for customers, but this doesn’t engage them

As aging population reaches retirement how can they take decisions for themselves

Freedom and choice will only work if people understand their options

So we asked customers some questions

HOW WELL DO YOU UNDERSTAND…

Proportion who understand quite well or very well:

Financial term Men Women

Mortgage 93% 82%

Savings account 93% 83%

Tax Free Lump Sum 75% 54%

Annuity 54% 34%

Income drawdown 33% 17%

Joint-life annuity 32% 19%

Enhanced annuity 18% 9%

Marginal Tax Rate 24% 9%

PEOPLE DON’T UNDERSTAND PENSIONS

Even most basic pension terms are not understood, despite decades of saving

Particularly among older women

Dangers of poor decisions

Clearly, the role of ‘Pension wise’ Guidance will be vital – it must be promoted widely

But many will also really need advice

And including information, education, guidance in auto-enrolment is crucial

WHAT DO PEOPLE SAY THEY WANT?

Guaranteed lifelong income

Guaranteed also to keep up with inflation to pay their bills

Most people aren’t saving enough for this

Average pension fund too small, most annuities have no inflation-linking

Conflict between security and adequacy

SO WHAT ARE THEIR OPTIONS?

Save more

Work longer

Start pension later

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=RDZSM1z3xAKP8M&tbnid=NnrfqJAgeDMAwM:&ved=0CAcQjRw&url=http://spotfire.tibco.com/blog/?p=13999&ei=LTIZVOmnCIHdapL-gOAO&psig=AFQjCNEdFlTzaLGMiFNCcBkXHGweTkHPUQ&ust=1411023707429850






IMPORTANT CONSIDERATIONS FOR CUSTOMER

Tax implications – tax free in the pension fund, taxed if you take it out

Type of product – people need to understand the products

Timing – do nothing option has attractions, wait till later

HOW ABOUT EXTRA CUSTOMER PROTECTION?

• Providers asking a few relevant questions to assess customer circumstances

• Small number of compulsory questions e.g. health

• Duty of care before selling irreversible products that may be unsuitable

• Ensure benefits of advice are explained

…THANK YOU FOR LISTENING

Blog: pensionsandsavings.com

Twitter: @rosaltmann

Website: www.rosaltmann.com

http://www.pensionsandsavings.com/

http://www.rosaltmann.com/

Maggie CraigActing Head of Savings and Investment Division

Policy, Risk & Research Division

Financial Conduct Authority

#pensionfreedoms


Jackie Wells

NAPF

Jane Vass

Age UK

Panel Response

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Tackling consumer confusion and

giving retirees what they want.

How can the wishes of consumers be

supported by the pension reforms?

Wednesday 14th January 2015


#pensionfreedoms

Date post:	13-Jul-2015
Category:	Presentations & Public Speaking
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14Jan15 - Tackling Consumer Confusion

Presentations & Public Speaking