What will pensions be like in the future?
There have been a large number of changes to pensions in recent years, including auto-enrolment and the upcoming freedoms. It’s possible that things will stay largely the same for a while, but there’s also a chance that further changes will be forthcoming. This got us wondering, what will pensions be like in the future? Here are some possibilities:
Compulsory workplace schemes
Auto-enrolment was introduced in 2012 and has received a lot of praise for getting young people saving into a pension. However, although the opt-out rates are low, employees have the choice of leaving the workplace scheme if they do not want to be in it. A compulsory scheme would ensure that as many people as possible have some provision for their retirement.
The current minimum contribution for auto-enrolment is 2% of a person’s earnings – 0.8% from their salary, 0.2% tax relief and 1% from the employer. This will increase in the coming years, but the pensions minister Steve Webb has suggested that the percentage automatically increase when a person’s pay increases.
The purpose of auto-escalation is to try to increase the amount of money in private pensions, so that people can have comfortable retirements. Australia’s scheme is called Superannuation, and employers are required to contribute 9% of staff salary. By 2020 this is due to increase to 12%.
Pot follows member
Steve Webb has said he would like to see a system where a person’s pension pot follows them when they change jobs, to try and stop an increase in the number of unused funds. Currently it is up to each individual to manually transfer their pension when they move jobs, and many people don’t. Auto-enrolment could increase the number of unused pots too. It’s also the case that each time a person opens a new pension they will be paying more fees, and having smaller sums of money in a number of pots may lead to a lower overall amount when they retire than if they had larger sums in fewer places, because of compound interest.
There isn’t much that is not online these days, and the Budget announcement earlier this month confirmed that the annual tax return is being replaced with a digital system instead. It stands to reason that pensions will also be pulled further into the modern world by being accessible in a similar way to online banking. This dashboard could allow people to see how their pension is performing, growth projections and fees being paid.
The popularity of mobile devices and apps suggests that people would like to be able to monitor their pension on the move. There are already apps for projecting pension growth, and at least one by a provider allowing customers to review how theirs is performing. Features of an app could simply be similar to the online dashboard, or include information on National Insurance and the state pension too.
Greater transparency through comparison websites
When it comes to renewing car or home insurance, people know to check comparison sites to see if they can get a better deal. This isn’t often the case when purchasing an annuity though, despite the fact that quotes are available on comparison sites already. A push to increase awareness of the importance of getting a range of open market quotes would be a step in the right direction to helping people get the most appropriate retirement product.
Will retirement exist?
With the pension freedoms and an increasing State Pension age, there is speculation that retirement will no longer exist in the same way that it does currently. Instead, people may decide to keep working a certain amount of hours, drawing down from their pension as and when they need to. The new pension rules will allow for flexible plans, which will give people more control over how they choose to leave the workplace.
What do you think will happen with pensions in the future? Let us know with a comment below.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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