LONDON (Reuters) - Looming British pension reforms that give more freedom in planning for the costs of retirement have been ill-planned and run the risk of consumers making poor financial choices, a major pensions supplier warned on Thursday.
Royal London, Britain’s largest mutually owned life, pensions and investment company, was speaking weeks before reforms take effect which mean pensioners will no longer be forced to use their pension pots to buy an annuity, which gives an income for life.
The plans were set out by finance minister George Osborne as a way of giving more freedom, especially given the depressed returns on annuities in the current low interest-rate environment, but many in the industry have said they create the risk of poor financial planning for the long term.
“We wholeheartedly support the policy objective but customers are not ready for the new pension freedoms, which have been thrown into place in an entirely unrealistic timescale,” Royal London Chief Executive Phil Loney said in a statement.
“I fear that many will make the wrong, often irrecoverable decisions about their retirement and this will result in some very poor outcomes,” Loney added, citing a lack of requisite basic financial knowledge among many.
Insurers such as Legal & General, Prudential and Standard Life have already seen a drop-off of as much as 50 percent in annuity sales. The insurers are due to report 2014 results in the next few weeks.
Nonetheless a further plank of pension reform, a requirement for companies to automatically enroll employees into a workplace scheme, helped Royal London grow its new group pensions business by 83 percent to 2.2 billion pounds ($3.4 billion) in 2014 as smaller companies began to take part.
Continuing new life and pensions business sales for the year rose 39 percent to 4.8 billion pounds from 3.5 billion in 2013, while individual pensions business climbed 25 percent to 1.4 billion pounds.
The group, which employs 2,829 people and has around 5.3 million policyholders, said its asset management business in the year also continued to perform well, with net new external business sales of 2 billion pounds, although this lagged the previous year’s 2.5 billion.
Total assets under management were 82.3 billion pounds, up 12 percent on the year.
Royal London will publish its financial results for 2014 on March 31.
($1 = 0.6564 British Pounds)
Editing by Keith Weir and David Holmes