Pension freedom rules may be approaching their third birthday, but it is still to early to judge whether the policy has been a success according to National Employment Savings Trust (Nest) chairman Otto Thoresen.
Speaking at the Pensions and Lifetime Savings Association (PLSA) conference in Manchester, Thoresen (pictured) warned the real test for the reforms that came into force in April 2015 will come when fewer people retire with defined benefit (DB) pensions.
‘When the freedom and choice changes came in there was a lot of chat about about what behaviour we are seeing,’ he said.
‘We are looking at a generation [now] who are not a defined contribution (DC) generation. We are looking at people who have had the benefits of some DB saving and some element of house price increases and other forward winds that the generations to come will not have. So the other thing I worry about is too often we try and draw conclusions about what is happening now.’
Earlier this year the Financial Conduct Authority said in its Retirement Outcomes Review 'the role of DC pots as the main source of private retirement savings will grow' because of a decline in members of DB schemes.
The regulator found that of the people who have accessed their pensions through freedoms, the majority relied on sources of income outside of DC savings, including DB pensions and the state pension.
Thoresen added the pattern of small pots being built up through auto-enrolment will not ensure people get what they want out of their retirement.
‘The level of saving is clearly an enormous challenge ahead and we are at the moment looking at millions of millions of tiny pots of money which are, without massive progress over the next 10 or 20 years, are not going to achieve what we hoped they would achieve. But it is a very important start.’