Comment from Phil Naylor, Legal & General on Lord John McFall's pension proposals.
11 May 2011
"We totally agree that it is so important to try to re-invigorate pensions so everyone, not just young people, where possible, save adequately for their retirement. But the proposal needs to be wider than just a change in the language used to communicate with the public.
We believe that it is so important for people to also understand that there are two key stages to their 'pension'. The accumulation stage which is focused on pension savings and investment and then also equally important, the decumulation stage, where insurance in the form of an annuity maybe key in the provision of their actual pension income. The annuity is often likened to an investment contract and as such receives criticism for offering poor value. We believe this criticism is made without a thorough understanding of cast iron reassurance the annuity product provides for millions of pensioners.
Recent DWP stats highlighted that overall people are living longer and it is the dramatic improvements in life expectancy that many consumers and advisers invariably underestimate. In 2010 the Office for National Statistics revealed that average UK life expectancy for a male aged 65 was a further 17 years to age 83 while a female aged 65 could expect to live a further 20 years to age 85. Research has shown that men between the ages of 60 and 69 tend to underestimate how long they will live by nearly 3 years and women by nearly 5 years. However, what is often overlooked is that consumers who have saved in a pension plan and then actively shop around for their pension annuity are not representative of the UK population as a whole in terms of their life expectancy. In this respect as a provider of pension annuities, based on our own experience, we would expect them to live a lot longer than the UK estimate, to age 90 in fact.
So consumers are faced with the difficult challenge of ensuring they save enough for retirement in the first place and then converting their savings into an income faced with the prospect a living a lot longer than they ever imagined. Which is why we believe as well as improving pension savings in the accumulation stage, the Commission also needs to improve people's understanding of the value and benefit of arranging a pension annuity. An annuity should not be viewed as an investment vehicle but more of an insurance contract against living too long. Quite simply the pension annuity will continue to provide a secure income stream no matter how long they live and this is the reassurance that most people seek."
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