Written evidence from LV= (PSL0016)
About LV=
LV= is a leading a leading financial mutual protection, savings and retirement provider.
We believe that everyone should have access to independent, regulated financial advice. It should not be seen as a luxury for the few who can afford it or who are experienced in using it. Why? Because it provides financial and emotional benefits. Good advice ensures better financial outcomes and frees people from the worry of making complex decisions that could have long-term implications.
Our 1,500 people help our customers protect their income while they are working and maximise it when they stop.
We work with a wide range of financial advisers and it is through them that the majority of customers will buy our products and services.
Our 1.28million customers, 1.25million of which are members, hold a variety of products with us including life insurance, income protection, investments and retirement income solutions such as equity release, fixed term annuities and drawdown products.
Call for Evidence
Protecting pension savers – five years on from the pension freedoms: Saving for later life
In 2015, people aged 55 and over were given more choice about how they accessed their defined contribution pensions. Five years on, the Work and Pensions Committee started a major piece of work looking at the next steps in preparing and protecting people moving from saving for retirement to using their pension savings.
This is the third and final part of our inquiry, looking at saving for later life and what more needs to be done to help people plan and save for retirement. We published a report on the first part of the inquiry, pension scams, in March 2021 and concluded taking evidence for the second part in November 2021.
The Committee would like to hear your views on the following questions. You don’t have to answer all of the questions. You can respond on behalf of an organisation, or as an individual.
Research from the LV= Wealth and Wellbeing Monitor indicate that people aged 55-64 are generally less confident about retirement than a year ago. This is a crucial age for retirement planning and 41% of people in this group (who weren’t yet retired) said they were confident that they have saved enough for a comfortable retirement.
Women (35%) are much less likely than men (52%) to be confident about their retirement prospects.
It’s important to not to consider only the level of pensions savings’ as other elements such as State Pension and equity in property are important elements in providing a retirement income.
Auto-enrolment is in principle a good idea and LV= supports initiatives that encourage people to save for their retirement. Current contributions levels are likely to provide only a modest income in retirement, even when combined with the State Pension. One proposal that LV= would support is lowering the auto-enrolment age from 22 to 18.
Planning for retirement is a big wide set of considerations and decisions and most people will need some form of strong guidance or advice to help with that.
Retirement is complicated and people have several options when retiring: drawdown, buying an annuity or taking their pensions as a lump sum.
However, millions of people know little about their retirement options. More than a third (35%/ 10m) of pension holders admit they know nothing about the product options at retirement and the pros and cons of each option.
Consumers also do not understand some of the big risks at retirement. Some 35% (10m) of pension holders know nothing about how stock market falls can affect retirement savings while about a third say they don’t know how to ensure they don’t run out of money in retirement
LV=’s has conducted extensive research into consumers’ attitudes to financial advice. It indicates that there are several reasons why people refuse to take advice.
Nearly half (46%) of non-advised mass affluent people – those with assets of between £100,000 and £400,000 (excluding property) - say they can make financial decisions on their own.
Some 27% of non-advised mass affluent customers don’t want to pay for financial advice and 20% believe it would be too expensive, while a quarter (25%) doesn’t think financial advice offers good value for money. Fewer than a third (31%/ 16.2m) of UK adults generally think people should see a financial adviser when deciding how to access pensions at retirement.
Yes, in the right circumstances. However, careful planning and research is needed to ensure that these work as intended. If based on a combination of current annuity rates and inflation assumptions, there is a risk that the amounts needed to provide a modest retirement will appear unachievable and lead to disengagement.
Encouraging people to take financial advice and making advice or guidance more affordable for people with small pensions, and raising awareness of the options at retirement would help improve outcomes for savers.
For example, The Pensions Advice Allowance is one initiative that is a good idea in principle but it is not commonly understood by the customers it was really aimed at: those in the advice gap who would benefit from advice but don’t have an adviser.
Unfortunately, the reality is the £500 is not sufficient to pay for advice (typically £1,000 plus) and in the scheme of all the information thrown at customers, and generally low engagement with advice, it has not gained traction.
One option would be to include information on how to access advice within Pensions. A “regulated advice voucher” funded by industry, could also be made available to individuals to ensure best possible outcome for individuals.
The most vulnerable - such as those with a total pension pot that would provide an annual income below the Government living wage - should have free access to advice.
The Government should also continue to offer incentives for pensions savers. For example, an assurance that the 25% tax-free commencement lump sum at retirement continues to be available as an incentive to individuals to save in the long-term for a pension.
One thing to consider is how to encourage savers to take an appropriate level of risk when investing. Aside from property, many Britons have little understanding of investing and are often reluctant to put money into anything they perceive as risky. However, risk ratings are typically a measure of volatility, with higher risk levels often resulting in higher long term rewards. Making it clearer what an appropriate risk level might be based on a saver’s retirement horizon could help produce better outcomes, especially for those attempting to do it on their own.
For a number of years, there has been a strong focus on lowering the charges for pension products and the funds they invest in, which is something that was needed and has benefitted customers. However, the focus on charges may have resulted in less innovation within the pension space, due to the added costs of providing guarantees and safeguards that consumers want. Persistent low interest rates and quantitative easing have also negatively affected outcomes in this respect, as it has made it very expensive to secure guarantees around retirement income that most Britons ideally want.
LV=’s research indicates that the finances of self-employed people are often precarious and many would not be able to survive a week without work. A quarter of freelance and contract workers have less than £2,000 and they are a group that has not benefitted from auto-enrolment.
The Self-employed are most at risk of not saving for retirement, as they don’t benefit from the auto-enrolment nudge and a workplace pension that is chosen for them. The IFS reported that ‘In 1998, 48% of the self-employed contributed to a private pension, and by 2018 this had declined to just 16%’ – HMRC have subsequently confirmed that pension contributions in 2019/2020 for the self-employed were the lowest on record. More needs to be done to engage this group with pensions, which could involve more active prompts at the point of submitting self-assessment returns.
We will be taking evidence through the early part of 2022. The deadline for written evidence is 2 February 2022. We’ll still be able to use evidence we receive after that date, but your evidence will be able to have more impact on our work if we receive it by the deadline.
January 2022