I’ve seen a couple of articles recently suggesting that the pension freedoms are failing.
The argument is that there’s no evidence that retirees are any better off now than before the freedoms were introduced: it doesn’t seem as though pensioners are getting any richer.
But was this ever one of the purposes of the pension freedoms? They were, after all, dubbed pension ‘freedoms’, not ‘increases’.
If it wasn’t the point, it doesn’t seem fair to use it as evidence that the measures are failing. But that still leaves us with a question – other than giving people more flexibility, what was the point of the freedoms?
Long-term aims
The Work and Pensions Committee’s pension freedoms report earlier this year concluded that the government needed to document what the long-term aims of the freedoms actually are, and confirm how it will monitor progress. The Association of British Insurers had told the committee that the government ‘had not stated a purpose of pension freedoms.’ It didn’t seem as though anyone was clear on the long-term point of the freedoms.
Rather fortuitously, as I was writing this article, the government released its response to the committee’s paper. The section relating to this particular point made for very interesting reading.
Those of us always ready and willing to argue semantics probably noticed that while the committee had asked for ‘long-term objectives’, the government’s response confirmed its ‘key priorities’. Was this simply a case of using different words, or has the government subtly avoided directly addressing the committee’s request?
Flexible solutions
The response did state that the government had outlined its ‘high-level objectives’ in the ‘Freedom and Choice in Pensions’ paper released after the 2014 Budget. Primarily, the paper talked about the changing nature of retirement, and the need for more flexible solutions to meet the increasingly diverse needs of pensioners.
However, it also discussed the hope that more people will feel confident to save more if they feel empowered when it comes to accessing their pensions at retirement, ‘know[ing] that they will be able to get value for money from their savings’.
Unfortunately, though, this statement is vaguer than it first appears.
What would qualify as ‘value for money’ in this context? Is there a direct comparison to be made between the pre- and post- pension freedoms worlds? Or does it simply refer to a saver’s ability to choose not to purchase an annuity if they don’t feel it is value for money?
Either way, this is one of the most clearly expressed aims in the paper: to encourage more people to save more by putting them in control of their money.
It also feels like quite an easily measurable aim which therefore could have been mentioned in the government’s response. That is until you realise that the number of savers and the value of contributions is increasing anyway due to auto-enrolment. It would actually be very challenging to identify those whose actions are purely driven by the pension freedoms, which is perhaps why it isn’t mentioned in the response.
Skirting the issue
In fact, the response seems to skirt around the idea of monitoring performance altogether.
For two of the three priorities listed – to help consumers make informed decisions and to enable a more competitive market – it would be very difficult to measure the success anyway.
You can offer help without it being taken, so if there’s no improvement in consumer outcomes you could argue that this doesn’t prove failure.
Similarly, you can enable a more competitive market without it actually becoming so. The third priority was to give people more choice and flexibility – this was simply achieved the moment the pension freedoms came into force.
Possibly the most intriguing statement in the response is as follows: “The achievement of these objectives will mean that individuals will be able to plan for and design a secure retirement that meets the needs they themselves have identified.”
Again, perhaps I’m reading into it too much, but this seems to have been phrased so that someone could argue the success of the freedoms almost regardless of what happens.
‘Will be able to’, rather than ‘will’. ‘Plan for and design’ rather than ‘have’. It’s also very explicit about the individual’s responsibility to identify their own retirement needs and act accordingly, which seems at odds with the frequent reports of advisers and providers coming under fire for not adequately protecting consumers from their decisions.
One thing certainly not present in the response is any assertion that the pension freedoms were ever intended to make retirees richer.
Jessica List is pension technical manager at Curtis Banks Group