Mark Fawcett: Are the pension freedoms living up to expectations?


Since the pension freedoms came into force, a lot has been said about the sums withdrawn. It remains to be seen whether this trend continues or is a short-term response to new-found freedom.

What is clear from the National Employment Savings Trust’s (Nest) research is that while people value flexibility and want access to cash, their main concern is having a secure income after they stop working which will last the rest of their life. The total sums withdrawn so far are very large, but the average cash payment is under £15,000. This probably reveals the nature of current retirees’ savings; Nest’s research shows people retiring today have a number of different sources of wealth, including property, defined benefit (DB) schemes, defined contribution (DC) pots, private pension plans and the state pension. Their DC provision may only be one slice, and most likely a relatively small one, of their overall retirement provision.

Ten, 20 years from now this is far less likely to be the case. Pension and saving trends suggest that, in future, most of the auto-enrolled generation will rely almost entirely on their workplace DC pot and the state pension. This means retirement solutions will have to do a lot with the DC pot. A single solution that provides a steady income in the early years of retirement without locking savers in; offers access to some money as cash for ad-hoc needs; and secures an income in later life that will not run out is what Nest would like to see for its members.

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Whether or not the short-term expectations of the pension freedoms have been met, new solutions like this are needed so the DC generation of the future can benefit fully.

Mark Fawcett is chief investment officer at the National Employment Savings Trust (Nest)