Price: In DC pensions the charges levied by providers are highly visible. Maybe individuals will simply carry on where employers left off and choose the lowest charging provider.
Investment destinations: Will lifetime pot providers dangle the carrot of superior net long-term returns by investing in infrastructure and nascent British businesses, as the chancellor clearly hopes?
Perhaps a compelling story if the buyers stop to understand how long-term pensions work. However, rather like organic vegetables, the benefits may seem too nebulous.
Investment track record: Savers have a history here already, and in Isas we have certainly seen fund managers that have successfully attracted large inflows from retail savers keen to bet on a previously winning horse.
Advertising spend: Through extensive advertising on TV, internet and roadside posters we may see lifetime pot providers building their brand and persuading savers, who often know very little about pensions, that they are the ones to trust.
Member get member: It is a horrible thought that the reason someone might choose their lifetime pension provider is because their friend shared £100 cashback for introducing them.
But behavioural science has proved that people place far too much weight on near-term benefits – that cashback, free pen or umbrella – than they do on matters of longer-term importance like their prospective retirement income level.
And in complicated and unfamiliar areas like pensions where savers do not know who to trust, they may well listen to and trust their friends.
Advisers should prepare themselves for future questions from clients asking whether they should exercise the new freedom that Hunt is going to give them requiring their employer to re-direct the workplace pension contributions into their self-invested personal pension, or other chosen lifetime pot.
I do not think it will be an easy question to answer, as it really merits a deeper understanding of the client’s lifetime aims and ambitions from all savings. Will a lifetime pot better meet these aims than the scheme the employer has chosen?
Is the risk level of either scheme appropriate for the client? Does the investment approach of the employer scheme function as a diversifier for the client’s whole portfolio or is it concentrating risks already present in their other savings vehicles?
Before embarking on this journey, advisers would do well to remember that we have been here before, with the iron lady, Margaret Thatcher.
She too was an enthusiastic Conservative reformer, giving employees the right to opt out of company pensions and have their own personal pensions, and to choose free standing additional voluntary contributions over company AVC plans.
