20 November 2015
Pensions revolution continues as life expectancy lengthens
Pensions assets amounted to US$36,119b in the world's leading 16 pensions markets, according to a report published by Towers Watson in February this year.
Pensions has for decades been one of the steadiest, most reliable business areas for the major insurance companies which operate in the life and pensions sector.
Global financial crisis
During the global financial crisis, pensions also kept teams of lawyers, actuaries and other professional advisers insulated from the ravages of economic slowdown. And, even though numerous changes are taking place in the sector, experienced specialists in the area are unlikely to feel a lack of work in the coming years.
At the moment there are some 1,100 members of the UK’s Association of Pension Lawyers, a group that was established just 31 years ago. The Association was founded by Robin Ellison in 1984 when pensions law was seen as a small area in the left field. Now head of strategic development for pensions at Pinsent Masons, Ellison is both an academic (Visiting Professor in Pensions Law at London’s City University) and a hands-on pensions specialist (having chaired the industry body, the National Association of Pension Funds). He can talk about pensions product design just as easily as he can discuss the legal implications of pensions-earmarking on divorce. Other practitioners have also engaged with the industry in a similar way - meaning that pensions lawyers as a whole in the UK are decades ahead in their sector specialisation than their lawyer counterparts who work in banking or manufacturing and other more mainstream sectors.
Tax and pensions
Like the area of taxation, pensions covers the affairs of individuals as well as of corporates and other organisations. But, while personal tax has become something of a niche, pensions has become increasingly mainstream. Looking at London firms operating in personal tax (known as ‘private client’), Chambers and partners lists the top six firms as Charles Russell Speechless, Farrer & Co, Macfarlanes, Maurice Turnor Gardner, Taylor Wessing and Withers. Looking at pensions, Chambers lists the top five in London as Allen & Overy, CMS, Hogan Lovells, Linklaters and Sacker and Partners.
An ageing population has created a whole stream of new issues for the insurance industry in relation to pensions. ‘Pensions freedom’, introduced in April 2015 in the UK, suddenly allowed the 55+ age group to get access to their pension funds - a change that has required considerable legal advice on the tax implications and the consumer protection regulation. In future, it could also lead to litigation if young pensioners are seen as being badly advised to take out the money that was supposed to see them through retirement. Mark Latimour, partner and pensions investment expert at Eversheds, said: ‘There are clearly a range of different issues that savers need to be aware of, ranging from pension ‘scams’, to mis-selling, or simply inappropriate advice. Whilst the new freedoms mean greater opportunity for savers in terms of the flexible use of their retirement savings, there is also greater potential for savers to lose out.’
Persuading people to retire
Another issue which employers want help with is how they can persuade staff to make sufficient pension provision for themselves. Since 2011 UK employers have not been able to retire staff at 65 or some other age without an objective reason. Organisations are now starting to realise that, unless they take action, they will end up with large numbers of older workers still in situ because they cannot afford to retire.
The UK is in the vanguard of pensions development - and many other states are likely to watch its experiments in the area. As life expectancy increases and the middle class becomes a bigger force around the world, the role of the pensions sector is set to expand.