Article by Christina
According to the Institute for Fiscal studies (IFS) the self-employed are not saving enough into their pensions and need a financial advisor for pensioners to help them.
Research has found that only 20% of self-employed business owners contribute into a pension. That will mean that at retirement over half of the self-employed would have no extra income to boost their state pensions. As a financial advisor for pensioners that is a major concern.
However, the research also found that the self-employed were likely to have other savings outside of pensions. Mainly property wealth.
It’s not just the self-employed who aren’t doing enough. Also according to the IFS 40% of employees saving into Defined Contribution pension schemes are not saving more than 8% of their salary into their pensions. This means that they too are likely to get a pension worth less than the current estimated minimum for a comfortable retirement. The IFS has recommended to the government pension review that employers pay a minimum of 3% of salary into employees’ pension schemes. If employees contributed 8% it would a total of 11% saved into a pension. But how many employers could afford the increase in contributions?
Future pension crisis
This is a problem which is only going to grow. According to Phoenix Insights UK pensions are facing a crisis in the next 20 years. By 2040 it is predicted that 60% of employees with Defined Contribution (not Final Salary) pensions will have a pension that is below the current level of what is considered by most financial advisor to pensioners to be “adequate”. This is going to lead to widespread pensioner poverty. Nearly 3 million people could fall into this category. It’s going to create an “us and them” culture, where “them” includes public sector workers whose pensions are being funded by the taxpayer.
Even worse, according to the IFS 25% of workers aren’t making any pension contributions at all, not even through the auto enrolment scheme. The retirement future for millions of these people looks very bleak indeed.
Not enough people taking advice.
In other news, according to SJP 25 million people in the UK have never had any financial advice.
That might explain why Shepherds Friendly found that only 50% of people passed their financial literacy test. The test looked at general personal finance questions including protection and ISA’s. There was a big age gap in the results. Only 15% of under 24’s passed the test compared with 65% of over 65’s.
The survey also looked at what people regretted and found that:
- 56% said they should have started saving sooner than they did.
- 47% wished they had invested sooner.
- Only 6% regretted buying a house and
- 43% said that they should have taken the time to speak to a financial advisor for pensioners to understand their finances better.
With only 8% of people in the UK using a financial adviser it is reported that HSBC are ramping up their wealth management business. They think that they can tap into what they describe as the “mass affluent” market. That is people with over £100,000 in investable assets but who are not currently getting any advice. HSBC estimate that there are 15 million people like this who need financial advice, with over £50 billion to invest.
However, last time the big Banks were in the advice market it didn’t lead to great customer outcomes. Perhaps we should be worried that HSBC say that it only takes six months to qualify through their training division. Six months training to become a financial adviser doesn’t give us much confidence. Our recent trainees Mhairi and Mark took over 2 years to achieve their qualifications and much longer to become competent to advise clients.
Financial etiquette
There was an interesting article in Money Marketing (6/9/24) a Ford Money survey looked at some of the financial do’s and don’ts that make people think twice about trusting a partner with money. For example, people get concerned about the following:
- People who borrow money and then don’t pay it back.
- Someone talking about how much money they have.
- Someone whose credit card is declined.
- People who don’t tip.
- Having a bad credit rating.
- People who don’t pay their fair share of a bill.
- People who use buy now and pay later schemes.
- Not opening bank statements.
- Spending all your salary in the first few days of the month.
Quite a long list. It makes you wonder how much correlation there is between people who maybe do these things and those with savings and pensions?
