Budget 2014: industry reactions

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Here are a variety of views regarding the surprising pension changes during announcement by Chancellor George Osborne.

As you can see, the industry's reaction to Budget 2014 was mixed.

Joanne Segars, the National Association of Pension Funds (NAPF) chief executive, described today's announcement as "perplexing".

She said: "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."

Segars added: "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."

Paul Macro, partner in Mercer defined contribution (DC) & savings team also noted a contradiction in the Government's aims concerning the change in tax rules, which will allow people to access their DC pension as they wish from the point of retirement.

He said: "Clearly all of this is good for flexibility but does go against the 'save for income in your retirement' mantra if people can simply take all as a lump sum."

Macro added: "We welcome the 'Right to advice' initiative but it needs to be sustainable and genuinely available to all retirees both at the point of retirement and beyond. We await further details."

Kevin Wesbroom, Aon Hewitt senior partner, said: "Real surprises in Budgets are rare but today's announcements mean a whole new ball-game for DC pensions. This is clearly welcome news for members as they will get greater flexibility to manage their finances - however it may have unexpected consequences.

"On the one hand we applaud the Government's intention to free up choice and flexibility for members, but on the other, it is clear that is going to be up to the industry to make these changes happen."

Aon Hewitt partner Jan Burke expressed concerns that the costs of running schemes will increase as trustees review administration, scheme design and default design and attempt to communicate the new options to members.

Burke added: "Neither are these changes just confined to the DC marketplace - they will also have knock-on implications for DB schemes too. The interaction with DB has yet to be decided but would form an important part of the overall flexibility members want, regardless of their scheme type."

Regarding the free and impartial advice that retiring people will receive, Capita head of marketing Robin Hames said: "While we welcome additional flexibility, what is less clear is how this 'free' guidance will be funded and, perhaps as importantly, who is going to deliver it.

DeVere Group CEO Nigel Green slammed the announcement to remove the restrictions on pensions as "dangerous", "short sighted" and "ill-conceived".

He said: "This move to scrap the restrictions is in direct conflict with the spirit and purpose of pensions - which is to provide the individual with an income throughout their retirement.

Ian Hammond managing director Rowanmoor Group plc said: "The industry has been calling for pensioners' income flexibility and choice at retirement to be widened, however the scale of the announcements in today's Budget could not have been anticipated.

"It is unprecedented for changes of this scale to be implemented, particularly in such short timescales, without consultation."

He added: "Whilst these reforms appear be the bedrock of a new, more flexible pension system in the UK it will take some time for the industry to fully digest their impact."

Although TISA head of engagement Peter Smith was initially surprised, as everyone else was, by the "unexpected pensions bombshell", he said that the announcement of a radical overhaul of pension rules was "fantastic news" for pensioners and savers.

JLT Employee Benefits CEO Mark Wood said: "The Budget marked the single biggest leap forward for pensions for nearly a hundred years. This is the Government's silver bullet for the silver generation. Flexibility for pensioners is an essential ingredient in encouraging a savings culture.

"Doom-mongering for annuities and the life assurance sector is hugely premature and the extreme reaction of these companies' share prices, such as Legal & General and Just Retirement, should surely begin to correct once the shock factor has been overcome."

In a statement, CBI said that the increased flexibility for people in DC schemes "will be welcomed".

The statement continued: "In the long-term, greater flexibility might encourage people to save more for their pensions.

"We are pleased that the Government has chosen to consult on the implications of making a similar change to defined benefit pensions as stability for these schemes is essential."

Chartered accountants HW Fisher & Company private client partner Jamie Morrison said: "Eight years after the last tinkering with pensions, these changes are a significant simplification – and a welcome recognition that more people are able to take charge of their own pension saving."

Buck Consultants head of pensions policy Kevin LeGrand said: "Prior to the Budget, Buck called for easement of the restrictions on drawdown arrangements; these proposals go further and follow our more blue-sky thinking that will allow pensioners complete freedom.

"It is important to remember, however, that for many the security of a purchased annuity will still be worth paying for. This is where good advice will be essential, and there are proposals to introduce a new source for that; this is good news, but there must be clarity over which advice route the member should take."

John Fox, Liberty SIPP director, said: "Chapeau to the Chancellor. The changes announced today represent the beginning of the end of pension prohibition."
He added: "The Government is aware that new schemes are being created all the time to help people get their hands on their pension funds and appears to have thought, 'to hell with it, let's take a slice of the pie'.

"It's no coincidence that this move by the Chancellor will give the economy a massive influx of cash prior to the General Election and also put a feel-good factor in many people's step."

Nigel Aston, State Street Global Advisors head of UK DC, said: "Bringing an end to the compulsory purchasing of annuities will have a massive impact on individual savers who will now be able to consider a much wider range of options at retirement."

He added: "This landmark change should lead to a surge in innovative and consumer-centric products that cater for this demand and make pensions saving much more attractive to everyone, not just the wealthy."

Deloitte pensions advisory partner Tony Clare said: "Reforming income drawdown rules is long overdue. It will make pensions more flexible and attractive."

Osborne's pensions announcement was described as "great news" by Stephenson Harwood pensions partner Fraser Sparks, "encouraging" by Investec Wealth & Investment senior investment director Elissa Bayer and "very significant" by Broadstone managing director Matthew Phillips.

Broadstone actuarial director John Broome Saunders said that the relaxation of pension rules for DC schemes could benefit sponsors of defined benefit (DB) schemes.

Increaseyourpension.co.uk director Craig Palfrey said: "RIP the annuity, although I'm not sure too many people will be attending the wake. Rates have been quite frankly abysmal for some time.

"Today's Budget represents a revolution in how pensions will be treated when people come to retire. What these proposals have done is put the ball very much in the pension saver's court. Effectively the Government are saying: 'It's your life, deal with it'."

First published 19.03.2014

monique_simpson@wilmington.co.uk

19 March 2014
Monique Simpson

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