Nearly all of us want to enjoy decades of leisure time between the day we retire and the hour the Reaper rings the doorbell. It is clear, however, that as the UK Government becomes less willing to fund our golden years, more and more of the burden is going to fall on individuals. In theory, this should be good news for Scotland and its giant life and pensions companies
Nearly all of us want to enjoy decades of leisure time between the day we retire and the hour the Reaper rings the doorbell. It is clear, however, that as the UK Government becomes less willing to fund our golden years, more and more of the burden is going to fall on individuals.
In theory, this should be good news for Scotland and its giant life and pensions companies such as Standard Life and Scottish Widows. More policies mean more business.
And they are in good shape to compete - in comparison with the banks, they have ridden through the economic downturn relatively unscathed. This is partly because pension providers in Scotland and elsewhere have to think for the long term - an annuity can require an investment for 30 years or more - rather than engaging in the relatively short-term lending and borrowing associated with bank finance.
But, according to Gary Cullen, partner and head of pensions with legal firm Maclay Murray and Spens, potential challenges for the sector lie ahead. One of these, he says, is that the forthcoming NEST low cost workplace pension scheme could cause a decline in personal pension plans as policyholders and their employers switch to the new scheme. "This could mean less business for the financial services industry," he warns.
"There has also been much discussion about the wish of the Liberal Democrats to abolish higher rate tax relief on pension contributions, which could deter middle to high earners from saving within pension plans and therefore kill off part of the industry."
A reduction in the annual individual pension investment allowance to s50,000 and a cut in the lifetime allowance to s1.5m could also drive people away from this form of saving and into other asset classes, he says. "The impact and decline in saving in pension schemes could have a serious impact on the financial services industry, which is very much dependent on high earners saving to help absorb the cost of running personal pension plans and stakeholder plans."
John Lawson, head of pensions for Standard Life, says the sector has been extremely resilient through the downturn. "In terms of financial strength we were not heavily affected by the credit crunch, and, in fact, we are better capitalised than when the financial crisis hit."
Scottish companies, including the real giants such as Standard Life and Scottish Widows, have a reputation going back decades for a prudent approach to investment and cautious management of funds, and this has undoubtedly helped keep their customer base up.
Standard Life has been growing its presence abroad - its traditional overseas markets of Ireland, Canada and Germany have been supplemented by a presence in China and India. "These are enormous markets and although they are not as heavily regulated as here, they are catching up quickly," Lawson adds. "We still see the UK as an area of huge opportunity. The baby boomer population is approaching retirement and over the next 20 years or so we will tailor our offerings to that."
He is bullish about auto-enrolment into NEST - the key part of the programme is that qualifying employees will have to actively opt out of it, rather than choosing to opt in - and believes it will add a lot of new customers. "We also have a disproportionate share of the defined contributions pension administration business and we are well placed to benefit from that. This market is a low margin business and it essentially relies on scale so if you are not a big player you will not be able to compete effectively."
Another big change coming, he says, is the Retail Distribution Review, which will mean pensions companies no longer incentivising independent financial advisers (IFAs) to sell their products. Instead, policy purchasers will have to agree a fee with the IFA for the provision of advice. "We have to get used to justifying the services we sell on a standalone basis, rather than because we pay the most commission. And of course other companies will have to do the same. That is going to be a huge change for us all."