Category: Pensions

Communicating the benefits of advice: Why there’s still more to do

Posted on | by Arthur Beverly | Leave a Comment on Communicating the benefits of advice: Why there’s still more to do

In my Job as a Financial Adviser, I try to communicate and demonstrate, and if by doing so effectively, I can educate my client in my one-to-one client interactions.  And that is important because as people move from the world of work to one of retirement, financial planning can be genuinely life changing.

However, recent research from YouGov, the Research Group, to coincide with the third anniversary of Pension Freedoms, has shown that the wider public awareness of the value of advice is lower than might have been hoped.

Only one in 3 expect to seek advice

The introduction of Pension Freedoms (more of that in a moment), coupled with heightened interest in Defined Benefit Final Salary pensions, mean that we, like most advisers and planners I speak to, are incredibly busy.

Despite that, the survey found that the ‘value of advice’ message isn’t getting through to most people; only 32.08% of the over 50s who have not yet retired expect to seek financial advice about their retirement in the future.

Unsurprisingly, the likelihood of taking advice increases as people get closer to more traditional retirement ages. Even so, millions will retire without seeking any form of financial advice.

Pension Freedoms represent the single largest change to retirement planning during my financial services career. Used correctly it can help people retire more flexibly, moulding an income to their lifestyle and potentially leaving a financial legacy when they are gone.

Conversely, there’s no doubt Pension Freedoms also present a threat if poorly thought through decisions are made.

Pleasingly, among 50-64-year olds 63.84% of people are aware of the rules. However, that leaves approximately around 4.5 million adults potentially in the dark about Pension Freedoms; if they don’t know about them, how do they take advantage of the opportunities and avoid the threats?

 

Make no mistake, there’s a huge need for advice.  Give us a call and lets have a chat.

The Impact of Living Longer on Retirement Planning

Posted on | by Arthur Beverly | Leave a Comment on The Impact of Living Longer on Retirement Planning

Since the pension reforms of 2015, investors have a greater degree of flexibility and choice when accessing their savings. Significant though the reforms were, they have to be seen within the context of other changes affecting retirement, particularly demographic developments.

Accelerating life expectancy

Accelerating life expectancy means that a 65-year old man in the UK has an average of 18.5 more years of life ahead of him, while women of that age will live on average for another 20.9 years, according to the most recent data from the Office for National Statistics. These are averages, of course – someone could live for just one or two years in retirement, but there’s also a growing chance that they could live to 100. A retiree with sufficient savings to get them to 85 could still be left with an empty pension pot if they live beyond that point.

Underestimating

It may be surprising to learn that people tend to misjudge how long they are likely to live. A study recently showed that those aged 55-70 significantly underestimate their chances of surviving to greater ages. As a result, they may fail to take the required measures to prepare for a longer retirement.

Overestimating

Another error that people can make is to overestimate the level of income they can expect in retirement. Research has shown that in some cases the average income is considerably less than the amount they’ll need to be “financially comfortable”.

Unexpected outgoings

There may be many unexpected demands made on savings in retirement, including those from ongoing debt repayments such as mortgages, financial support for children and long-term care. These can be substantial.

From DB to DC

The decline in defined benefit (DB) (known also as Final Salary) schemes – when many workers retired with the security of an income until death – has created difficulties. Due to insufficient private pension provisions and rising life expectancy, the move to defined contribution (DC) (known also as Money Purchase) schemes has placed far greater responsibility on individuals for their pensions.

Considerations for planning

Careful planning needs to take into account investment risk, inflation, the risk of expenditure such as long-term care and mortality drag. Mortality drag refers to the need for drawdown investments to work harder – as investors become older – if they’re to provide the same income as an annuity. Unlike those annuitants who live longer than average, and who benefit from the cross-subsidy inherent in risk pooling, drawdown investors don’t have pooled risk in place.

Annuities: still working hard

This is why annuities – though waning in popularity – remain an important component of the at-retirement product suite. Investors are more likely to enter drawdown when they reach retirement. But an annuity option remains open to them, and may become attractive if maintaining a sustainable income from drawdown proves too demanding.

Ageing and decision-making

Another feature of ageing is its tendency to bring about cognitive decline. This can affect people’s abilities both to make decisions and to seek help with making decisions. And that includes financial decisions. Yet, despite their cognitive decline, people’s tendency to be confident in their decision-making remains. This is an important but difficult subject to bring up with clients.  Cognitive decline, dementia and Alzheimer’s disease will affect more people as longevity increases.

Awareness of the challenges

Being aware that living longer brings many financial risks is not enough in itself to solve all the problems. But it’s a sound basis on which to build a robust investment strategy.

 

Call us if you would like some advice

 

A cold call to chill the heart

Posted on | by Arthur Beverly | Leave a Comment on A cold call to chill the heart

William Burrows, a Retirement Director at Better Retirement, writes in Professional Adviser, a publication intended to serve the Financial Services industry, about a cold call he received personally last week and which is yet another illustration of why this practice of cold calling must be stopped. His article went on as follows:-

“It is time to stop unscrupulous firms cold calling. The gist of a cold call to me personally early this week should send shivers down the spine of all good financial advisers.

I was walking down the road to get a sandwich when I answered a call on my mobile. “Have you transferred your pension to a SIPP?” I was asked. To which I replied that I had.

Then without pause or hesitation, Sam from a company called Pension Reclaim rattled off a serious of false facts that made me extremely angry. The conversation, to the best of memory, went as follows:

“If you transferred to a high-risk SIPP, you might be able to get compensation.” In response to which I asked: “Why is a SIPP high-risk?”. Then came the most shocking part.

Sam replied: “When you took out the SIPP, your adviser probably asked you about your attitude to risk and you probably said you were low or medium-risk but he would have put you into a high-risk fund and made a lot of money out of it.”

That may not be the conversation word for word as I was not recording – and yet it is 100% the essence of what was said. At this point, then, I got very angry and said I was an adviser and it was outrageous to suggest advisers would knowingly put their clients in funds that were not suitable for their risk profile.

I then asked for full details of the person who was speaking and the name of his company so I could make a complaint against them but Sam would not give me his surname, said the company was Pension Reclaim and refused to give a contact number.

I searched for Pension Reclaim on Google but found no relevant results and then tried to call the incoming number on my mobile – 07480 024287. A search on the Who called me? website revealed a catalogue of complaints about this number.

On the one hand, I know I should not get worked up about this because it is just a reflection of the fake news and call-centre driven world we now live in. On the other hand, it is simply not acceptable that:

  • Cold callers can give such misleading information;
  • These companies make serious allegations against advisers when they themselves are not regulated; and
  • Firms like this cannot be contacted in order to make a complaint.

I have no idea where it would have ended if I had been someone else and had been persuaded that I had transferred into a ‘high-risk SIPP’. But it does now appear that cold-callers are trying to have two bites of the cherry – calling people once in order to sell them high-risk investments and then calling them again to refer them to a claims-handling company”.

William Burrows is Retirement Director at Better Retirement and was writing in Professional Adviser.

 

Start early to plan for retirement.

Posted on | by JD | Leave a Comment on Start early to plan for retirement.

We live in a time when the state pension age is increasing, the number of DB (Defined Benefit) Pension Schemes open to new members is decreasing, and more and more individuals will rely on DC (Defined Contribution) Pension Schemes in their retirement.

As a result of Auto Enrolment, it’s true to say the more people than ever are saving for their retirement. But the question is, will it be enough? For some, saving for retirement is at the bottom of their “to do” list.  Even if it’s on their agenda, they may not be in a position to save as much as they would like.

A question I am often asked is “How much do I need to contribute?” Of course, the answer to that is another question, “What sort of life style do you want in retirement?”  And the answer to that can range from “I don’t know” to “I don’t want to change my life style from what I have at present”.

Yes, we can make an educated guess, using assumed growth rates and assumed life styles. But that’s what the are – Assumed!

The best answer is generally, start early, ie in your teens or twenties and give yourself plenty of time to build up a substantial pension fund.  Apologies to those of you who have just missed those age groups.   But maybe you could encourage your children to start early.  Trouble is when you’re a teenager, you’re never going to get old, are you?

Remember, it’s not “the timing of the market”, it’s the “time in the market”.

Claire Trott: Public still has it wrong on pensions versus property

Posted on | by Arthur Beverly | Leave a Comment on Claire Trott: Public still has it wrong on pensions versus property

Latest statistics show personal pensions, in particular, get a bad rap

The recently published preliminary estimates from the Office for National Statistics’ Wealth and Assets Survey make for interesting reading with regards to how people view pension savings and how safe they are.

This survey has been run numerous times in recent years and it is always clear those questioned see employer pensions and property the safest way to save for retirement. They have actually attracted an even greater share of the votes in the last two rounds of the survey than previously.

The fact employer pensions saw 40 per cent of votes is a good thing but it does not tell the whole story. I wonder how much of this increase is because of automatic enrolment.

What is disappointing is that only 13 per cent thought that personal pensions were the safest way to save. With the move from defined benefit schemes to defined contribution schemes, there will be very little difference in the two. The fact employer schemes should at least have some additional contributions may make them more popular but it does not make them any safer.

It will be interesting to see if this becomes more aligned in future when DB schemes become even rarer.

On the flip side, when looking at which method of saving for retirement will make the most money, employer pensions came in a poor second, with 22 per cent of votes.

The top spot went to property, with 49 per cent. While this is no surprise, it does begs the question as to whether this is the right way for the public to consider it.

I know that the question put to the voters was not about what they had actually invested in but it is clear that those looking for bigger returns consider property to be the best option.

Of course, this is often not the case.

As we know, pensions offer tax relief and tax free growth while invested, whereas property has ongoing costs, costs when finally sold and tax on profits.

And personal pensions? 6 per cent of those surveyed believed they would make the most money. This is the most disappointing finding. We all know they are able to invest in the same, if not a more diversified, range of assets than the employer schemes and even property in some cases.

The need for education about retirement options is still clear. Retirement is not a single investment at a single point in time. All the options in terms of saving for the short and the long term need to be considered. All savings can work for retirement; clients do not need to put all their eggs in one basket.

As always, advice is key as they progress through life.

 

Claire Trott is head of pensions strategy at Technical Connection

Pension cold-calling ban to be in place ‘by June’

Posted on | by Arthur Beverly | Leave a Comment on Pension cold-calling ban to be in place ‘by June’

A ban on pension cold-calling will be put into law by June this year after the government introduced amendments to the Financial Guidance and Claims Bill.

The Bill, due to reach the House of Commons report stage on Monday 12 March, now includes a cold-calling ban and pension guidance provision.

The Work and Pensions Committeesaid the amendments brought the Bill into line with its recommendations designed to protect pensioners against scams and boost the take-up of free independent pensions guidance

Committee chair Frank Field said: “The government is now almost there, within spitting distance of what the committee proposed. I am delighted that they will be bringing forward a ban on pensions cold calling by June, as we called for.

“This represents a major leap forward in the urgent fight to protect pensioners’ savings against scams and sharp practice.”

He added: “On pension guidance, the government has moved much closer to the committee’s aspiration that the taking of independent expert guidance should be the default course of action when accessing a pension pot.

“The government can now give even greater reassurance by explicitly specifying on the face of the Bill, rather than in an explanatory memo, that the public guidance body will be the sole source of the ‘appropriate pensions guidance’.

“Guidance must come from independent and impartial experts, rather than from self-interested pension providers, if individuals are to make the best use of their savings.”

Expert guidance

Under the amendments, pension schemes will be required to ensure people seeking to access their pension are “referred to appropriate pensions guidance” and “has either received appropriate pensions guidance or has opted out of receiving such guidance”.

No reference to independent financial advice is included in the amendments, however.

The Work and Pensions Committee said it was “to ensure that clients are to be directed towards the independent guidance service”.

It added: “The explanatory statement to these amendments indicates the government’s intention that this guidance will be provided by the new Single Financial Guidance Body.”

An additional amendment makes it clear that the FCA’s rules should make provision about how individuals are to indicate that they have received guidance or expressly opted out.

 

The above is a copy of an Article from “Professional Adviser” dated 6th March 2018