Research and Consultation Responses
We welcome the FRC’s consultation on the Corporate Governance Code and efforts to continue to drive the high governance standards in the UK. Since the inception of the Code in 1992 the market has changed significantly, and it is a testament to structure of the code that the UK continues to lead in this area. Fundamentally we believe that the Code should remain high level, we support the current comply-or-explain approach and welcome the opportunity to feedback on the specific proposals.
On Thursday 12 October we hosted the first inaugural Royal London lecture ‘Where now for social care funding?’, delivered by Sir Andrew Dilnot and chaired by Alison Holt, BBC social correspondent.
Earlier this year the social care debate was renewed, taking centre stage at the UK general election. It caused controversial manifesto U-turns and uproar across the country, yet many questions have still remained unanswered.
Despite growing need from an ageing population, the number of people receiving residential care has barely increased since the turn of the century and consumers often have very little choice of suitable care homes with vacancies in their local authority.
Sir Andrew, author of the report which led to the 2014 Care Act, alongside an industry leading panel (Yvonne Braun, Director of Policy and Long Term Saving at the ABI, William Laing of industry experts Laing Buisson and our very own Jennifer Gilchrist, Proposition Lead at Royal London) explored the future of social care in the UK and offered potential resolutions to this complex crisis.
Sir Andrew Dilnot said:
‘Many of us will not need to spend large amounts on care in later life, but for those who do, the costs can be huge. We need to find a way to pool this risk rather than let it be a later life care cost lottery. A cap on care costs removes the catastrophic risk facing us all, and could help to stimulate more provision of private sector financial services. Coupled with a reform to means-tested state support, this could help tackle the ‘broken’ care market where the supply of residential and domiciliary care all too often does not meet the needs of older people’.
Steve Webb, Director of Policy at Royal London said:
‘There is a real risk that the Green Paper on social care will simply pose questions and will postpone politically difficult choices. The ‘Dilnot’ cap on lifetime care cost is an important part of the answer. It is only fair to make sure that those who are unfortunate enough to face huge long-term care costs in later life do not face an unlimited bill, and a cap would make it more viable for providers to come forward with insurance products. We also need to think creatively about whether care insurance could be integrated into other financial products such as pension drawdown accounts which would help to broaden the group of people who are pooling the risk of facing huge care costs’.
Watch the full Royal London lecture below:
For our report, "Pensions Through the Ages: The Millennial Mosaic", Royal London conducted research among 1,500 people aged 25 - 34, to understand the key influences on their long-term savings goals and retirement ambitions.
We welcome the opportunity to comment on the proposal for creating an additional category under the listing rules for sovereign controlled companies (CP17/21).
We agree with the FCA that the purpose of primary markets is to both provide access to capital for companies, and provide investment opportunities to investors. We are also sympathetic to concerns about ensuring the UK remains competitive in attracting capital to London.
However, we believe that capital markets do not simply provide a platform for financial transactions. They have a much broader function – which is to facilitate meaningful wealth creation for the benefit of society. It is important to remember that wealth can be both created and destroyed within capital markets. Therefore regulations must aim to support wealth creation and protect from wealth destruction.
For this reason, we are opposed to the proposal to create an additional category within the Premium Listing regime.
The Royal London National Funeral Cost Index 2017 reveals the average cost of a funeral has increased by 3% from 2016 and now stands at £3,784. Funeral debt has also risen to an all-time high of £160 million as people borrow from friends and family or the bank to cover funeral costs and give their loved ones a good send off.
This report demonstrates the very real value of financial advice for the consumer. Using robust statistical methods to control for a range of factors likely to determine demand for advice – including income, wealth and behavioural traits - our results show that those who take advice are likely to accumulate more financial and pension wealth, supported by increased saving and investing in equity assets, while those in retirement are likely to have more income, particularly at older ages. Our results therefore demonstrate, in a statistically robust way, the importance of financial advisers in delivering true value for their customers.
In recent years the number of people who are self-employed has risen steadily. Self-employment will be a positive choice for many, but one drawback is that the self-employed do not have the advantage of an employer to help arrange pension provision. Whilst automatic enrolment has helped more individuals save into a pension, the current process excludes the self-employed. Aviva and Royal London present a favoured model to getting more self-employed people saving into a pension and offer detailed suggestions as to how this might work in practice.
The report reflects on the role of religious belief in contemporary UK funerals, and the extent to which different faith groups get involved in funeral organisation and conduct.
We all want to make the most of our money. Yet 19 million people in the UK don’t have an approach to budgeting they feel works and many struggle to manage their day-to-day money. Saving and setting aside money for emergencies can be hard and it’s estimated that 21 million people in the UK have lessthan £500 in savings to cover unexpected bills like mending a boiler or replacing a fridge.
At Royal London we wanted to look at whether budgeting tools could help people manage their money better. To do this we asked a selection of our customers to use a mobile phone budgeting app or a simple pen and paper method to create and keep a budget for three months. We asked them about their budgeting habits and how they manage their finances at the start of the study and then again at the end. In addition we ran forums and interviewed some of the participants.
Royal London’s second Pensions Through The Ages Report, Feeling the Squeeze shows that, over a third (34%) of people aged 35 to 44 are Squeezed, saying that paying bills and meeting everyday commitments is a constant struggle. This equates to 2.4 million people UK wide.
The research shows that they are focused on paying for the ‘here and now’, with retirement planning and saving close to the bottom of their list of financial priorities. With house prices rocketing and many at an age when they are considering or have started a family, other life-stage finances are their main priority.
The latest Royal London National Funeral Cost Index reveals funeral debt in the UK has risen to £147m as people borrow from friends and family or the bank to fund the last wishes of loved ones.
Royal London’s research highlights that the average cost of a funeral in the UK is now £3,675, with 93,359 adults taking on funeral debt. The average debt being taken on to cover funeral costs is £1,601, which collectively equates to £147m across the UK.
Nearly four in 10 people who die leave behind a spouse or civil partner. Almost 70% of those bereaved say they felt either financially or practically unprepared for the death of their partner.
This report presents findings from a multi-methodology programme of research designed to understand, help, and improve, the experiences and outcomes for people who lose their spouse or partner.
Such an experience is naturally devastating, and while we may not be able to prepare for every eventuality, we can mitigate the worst impacts and help avoid the most catastrophic financial and practical effects through better planning, preparation.
A new report from Royal London finds seven in ten (69%) people who lost a partner were financially or practically unprepared for the loss. While death is a certainty we all face, only one in ten (11%) said they felt both financially and practically prepared when they lost their partner.
The first hand experiences of bereaved families make powerful reading. Whilst nothing can prepare you for the loss of a loved one, families who have experienced a loss are clear that there are things they wish they had done to ease the practical and financial consequences of bereavement.
Royal London is urging people to take steps now that would make life easier for their loved ones after they have gone.
This year’s Index confirms funeral costs continue to increase ahead of overall inflation. In 2015, the average funeral rose to £3,702 - an increase of £140 since 2014. Meanwhile, more than one in ten people struggle with funeral expenses – the average individual debt is now £1,318 per person.
Funeral costs continue to be a postcode lottery, as costs range from £2,976 for a cremation in Greenock, to £7,216 for a burial in Beckenham, Kent - a difference of £4,240. On a national scale, Wales saw the most significant cost rise of 5.2% between 2014 and 2015. This compares to a rise of just 2.4% in Scotland.
Royal London urges Government to work with industry experts to find better outcomes for bereaved UK citizens - a benefit system which is fast, simple, sympathetic, valuable and economical; one which protects both vulnerable claimants and the tax payer from unreasonable costs.
The government’s consultation, Strengthening the Incentive to Save: a consultation on pension tax relief , invited views on whether further change to the current pension system is needed to encourage more people to save and to save more. As part of this the Treasury asked whether the valuable tax relief currently available to those contributing to a pension to fund their income requirements should be changed.
As the UK’s largest mutual life, pensions and investment company, Royal London commissioned independent research to provide new insight on the views and aims of some of the key age groups impacted by the recent pension changes, to understand their attitudes to long-term saving and what, if anything, would encourage them to save more.
The research findings in the Pensions Through The Ages, highlights the need to:
- Improve the UK population’s understanding of the importance of saving for the long term so there is greater engagement with pension savings particularly with the younger generations;
- Promote the value of the benefit of pension tax relief incentives to encourage a stronger savings culture; and
- Improve the level of long term savings, with people understanding the level of income they need to secure to provide them with a comfortable retirement.
Earlier this year we commissioned YouGov to assess the extent to which Over 50s life insurance customers miss out on protection through the cancellation of their policies.
Our study found almost a third (28%) of people who had purchased Over 50s life insurance subsequently cancelled their policy. It revealed that in 2014, 52,000 UK adults cancelled their Over 50s policy - collectively losing out on £86m worth of premiums which had been paid to their provider.
This new report highlights the extent to which UK providers abandon Over 50s life insurance customers at a critical time in their lives – when they’re struggling financially with money worries. It exposes six issues which the market needs to address, and highlights problems which can’t be solved by one provider, they need attention from a united industry.
Royal London is calling for the Over 50s life insurance market to be remodelled - from the way products are designed to how customers in financial distress are treated.
We welcome publication of the FCA’s consultation paper on proposed changes to the pension transfer rules to allow for the retirement flexibilities which came into effect on 6 April.
We generally agree with the proposals contained in the paper. Safeguarded benefits are valuable benefits to the customer, so it’s important they fully understand the value of the benefits before giving them up and advisers providing advice on them are suitably qualified.
We welcome publication of the FCA’s Retirement Income Market Study.
We generally agree with the provisional findings of the market study that the retirement income market has not worked well for consumers, especially around annuities. The position will become more complex in April when the retirement freedoms come into effect unless relevant safeguards are put in place.
Customers need to be led through the retirement journey, rather than simply being told what they should do, to ensure that they receive the best solution for their needs. The proposed remedies don’t go far enough in making this happen. They need to be supplemented by affordable financial advice or an enhanced Pensions Wise guidance service that can give individuals a recommendation.
We welcome the Department for Work and Pensions (DWP) public consultation on Reshaping Workplace Pensions for Future Generations.
We believe that the focus of reshaping workplace pensions for future generations should be on improving the current DB and DC regimes, rather than creating a brand new regime. Significant developments have taken place with investment strategies in DC over recent years aimed at improving consumer outcomes and this is likely to continue. We believe that the development of future solutions is best left to innovation within the market.
Royal London is committed to working with Government to make sure our customers get the best outcomes at retirement. The policy initiatives announced in the Budget have the potential to better reflect the changing needs of customers in a rapidly changing retirement phase of their life.
We welcome the increased flexibility the Budget reforms will bring but with this will come an increase in choice and complexity as customers attempt to understand their options and navigate the market.
We believe that the Guidance Guarantee has a critical role to play in helping customers understand and navigate the new market. We are strongly supportive of the need to develop a Guidance service that is freely available to all customers, delivered independently and impartial from any provider or adviser firm.
The 2014 Budget changes will give customers greater freedom and choice on how they take their pension benefits, but with this increased flexibility comes complexity as customers attempt to understand their options and navigate the market.
The presence of the Guidance service should assist customers in understanding their options, but it will not help them to find the best product. Only advice can assist them in this and therefore needs to be more readily available with advisory firms extending their services to a wider range of customers including those with relatively modest retirement savings.
Download and read our response
The massive shift in the UK’s demographic profile (over 65s doubling in number from 8m in 2001 to 16m by 2061) was always set to lead to increased demand from later life investors for on-going investment-related financial services, which is very positive for financial advisers with the right skill sets and business models.
The scale of the opportunity and nature of the burgeoning in-retirement baby boomer client base will demand rethinking on the part of providers, advisers, policy makers and regulators in establishing robust protocols for the delivery of on-going, client-centred propositions that may endure for 30 or more years of later life.
Download and read this independent research report from Cazalet. Consulting
Royal London responds to the Work & Pensions Select Committee Pensions inquiry.
The paper outlines the need for the provision of a consistent quality of service that guarantees a good experience and generates support for increased long term saving. It explores the possible outcomes of a rise in the minimum level of contribution and also how best to ensure a good deal for members of the schemes.
The financial services industry needs full confidence in the future direction of legislation for it to fully support this market and Royal London proposes the establishment of a “Commission for Later Life Provision”. This paper supports the freedom and choice agenda signalled in the budget but believes a period of stability is needed to guarantee necessary changes can be implemented that will allow a positive customer experience for all.
Royal London has responded to a consultation by the Department of Work and Pensions regarding proposals to the thresholds for Auto Enrolment.
The response to the Command Paper outlines Royal London’s position on the earnings trigger for Automatic Enrolment and the negative consequences raising the limit would have on key groups throughout society. It also outlines the importance of maintaining the lower and upper minimum contribution bands and points towards the budget ‘freedoms’ further reducing the downside risk of saving in pensions.
This study sheds particular light on the issue of Funeral Poverty, and the large numbers of people in the UK who get into financial difficulty as a result of paying for a funeral, or who cannot afford to pay for a funeral at all.
The picture painted by our research is of an increasingly polarised society – divided between those who can and those who cannot afford a funeral, but a society that is willing to take on funeral debt if necessary when it comes to paying for a funeral.
All the evidence suggests that the cost of funerals has risen rapidly in recent years, with a resultant increase in funeral poverty (the problem of people getting in to debt and struggling to pay for a funeral). Research commissioned especially for this report indicates that funeral poverty now affects almost 110,000 people in the UK, with the total value of funeral debt amounting to £142 million.