In this third article I had planned to map out a pensions landscape in 50 years time.
However the more I thought about it the more I convinced myself that I really did not have a clue what the state of play would be in 50 years time. Although past performance is not always a guide to the future the events of the last 50 years and the rate of change convinced me that attempting to see that far into the future would be futile.
So I have settled on a look at the future in 25 years time, a more realistic timespan.
If one considers how the pensions world has changed in the last 25 years one could conclude that some simple linear extrapolation would produce a pensions environment that would be readily recognisable.
However I have settled on a slightly more extreme version of futurology – influenced to some extent by the impact of the global pandemic.
I can foresee huge developments in the nation’s infrastructure over the next 25 years.
There could be significant developments in housebuilding, transport and power supplies driven by global warning and net-zero emissions targets.
New technologies will have an enormous impact. A few weeks ago, I chaired a panel discussion about dragging pensions out of the digital stone age. The incredibly slow emergence of the Pensions Dashboard is just one example.
I am a technophobe so struggle to prophesy the impact that technology could have on the pensions industry over the next 25 years.
However, from what I have read it seems reasonable to assume that the pace of change could be exponential. I have been doing a little reading on the subject and am in awe of the impact that 3-D printing, artificial intelligence and nano-robotics might have. All I can predict with some confidence is that it will be a very different world from the one we know today.
In 2019 life expectancy at birth was almost 80 for a man and nearly 4 years more for a woman -although 20% (23% for a woman) of that life expectancy was “unhealthy”. According to ONS projections in 2018 20% of newborn boys and 26% of newborn girls in 2043 are expected to live to at least 100 years of age.
Most experts agree that it is too early to predict the impact of Covid 19 on life expectancy so this data needs to be treated with caution. It is also difficult to predict the impact of bio-medical technology although recent insights into the structure of proteins has led to suggestions that this could open up the “machinery of life.” What that implies and by when is far beyond my level of understanding but it suggests that these developments will be a major positive influence on longevity.
What seems clear is that the traditional three stage life of education, work and retirement will change and multi-stage life patterns will become the norm. That will have big implications for Financial Planning and for the whole pensions system.
Turning to pensions I wonder if pensions as we know them will exist in 25 years time.
The rapid growth in DC pensions suggests we may not actually need a separate pensions regime. Given the financial damage caused by the pandemic it must be time to think again about the whole tax relieved savings regime and focus instead on the need to save – both short term and long term. That could lead to a framework where there is a simple savings regime based on the current ISA model – but adapted to encourage longer term savings. There would clearly be huge implications but such a move would seem to have two crucial advantages.
The first would be a potential significant reduction in the cost of tax reliefs – vitally important given the huge growth in national debt as a result of the pandemic.
The second is that it could potentially lead to a massive simplification of the ridiculously complex pensions legal, regulatory and tax regimes that govern pensions today. That would also lead to a reduction in costs and as a result better value and outcomes for investors - and importantly much greater engagement. Such a change could not happen overnight and of course there would be huge legacy issues but we must bite the bullet sometime and surely now is the ideal time to start.
I started my career at the same time as a major change in pensions taxation – the introduction of the New Code of Approval in 1970. Another major reform to coincide with my “retirement” would provide a tidy close to my career. The odds are stacked against me but it would be great to be around to see just what the world of pensions looks like in 25 years time.
John Moret is principal of MoretoSIPPs consultancy and one of the UK's most experienced SIPPs experts, commentators and speakers. He has worked for Suffolk Life and several other SIPPs providers. He is chair of advisory business Intelligent Pensions and CX insight business Investor in Customers.