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Reforms are driving pension savings and changing how pensions are taken in the UK, says GlobalData
The UK’s pre- and post-retirement pension markets have recently seen some of the biggest legislative changes for a century, which have begun to drive growth in pension savings and change how individuals are choosing to access their pension pots, according to the latest report by GlobalData.
Danielle Cripps, Financial Analyst at GlobalData, explains: “The UK state pension has been changed from a two-tier to a flat-rate model. The eligible age to receive the pension is also steadily increasing to relieve pressure on the government, as the UK population is aging and individuals are living longer.
“Auto-enrollment has been introduced by the government to increase pension savings through employer-workplace pensions, and this will be a big driver of growth in work- and trust-based pensions. By February 2018, all businesses with employees will have to provide a pension to those eligible, and by April 2019 the total minimum contribution paid into a pension will be 8%, meaning that more individuals will be contributing, and at higher amounts. However, there is fear that increasing contributions may cause individuals to opt out.”
The pensions market is growing as awareness of the need for individuals to save and provide for themselves outside of the state pension is increasing. The pensions market was worth £10.8 billion annual premium equivalent (APE) in 2016 according to the Association of British Insurers, and is forecast by GlobalData to reach £17.5 billion APE by 2021.
The report also discusses new pension freedoms, which give customers more flexibility in how they take money from their pension, meaning fewer individuals are opting to buy an annuity, opting instead for income drawdown or cash withdrawals.
As more pension options are introduced, there is a greater need for advice about how to negotiate the pensions landscape. However, an advice gap exists because independent financial advisors concentrate their business on wealthier individuals, leaving those with less money to fend for themselves.
Cripps continues: “Technology and robo-advice will provide a solution to this by helping individuals understand how much they have saved across all of their pension pots, how much more they need to save to achieve their desired quality of life in retirement, and how it is best for them to take their pension in retirement.”
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