Article by Phil
Financial advisers recommend that you book in for a regular pension review to make sure your retirement savings are on track to last.
This comes on the back of stark figures from Legal & General which suggest that many retirees are overspending in their retirement. Some could run of money nine years early. With life expectancy now 86, L&G’s figures found that many pension pots would run out at only77.
The survey found that:
- 14% of retirees said that they now regretted spending too much in retirement.
- Nearly 60% did not have a pension review with an advisor before retiring. Instead, they worked out their own financial forecasts hence the shortfalls!
- 15% said that their tax-free cash was like a bonus and made them want to spend it.
- 20% took out their tax-free cash to save in a different “rainy day” account with over 40% taking it just because they could.
- 11% said that they did not understand the effect of the decisions they had made.
- 33% took their lump sum as soon as they could take it.
The average pension pot at retirement is currently £87,500.
Looking at the bigger picture, overall, there is over £7 trillion in the UK’s retail wealth market at the moment. This is held across pensions, investments and cash deposits.
Retirement Delays
According to consultancy firm Robert Walters, 70% of workers are delaying their retirement plans because of concerns about the cost of living in retirement. This ties in with the overspending figures.
A further 30% of those who had retired have also gone back to work on a full or part time basis in the last year or so. Of those, nearly 50% went back to work for financial reasons. But 25% went back to work for the sake of their mental health.
Over 2.8 million workers have returned to work after retirement.
A pension review might help some of them.
Pension Shortfalls
It’s not just concerns about the cost of living in retirement that is delaying plans, it’s not having enough funds in the first place. This is particularly true of the so-called Generation X (who are now aged between 45 and 59).
According to the Get Pension Ready campaign only 28% are on track with their pensions. The survey also found that:
- 78% thought that their pension wouldn’t be enough.
- 17% thought they would never have enough to retire.
- 65% had their final salary schemes closed on them.
- 60% thought there would be no state pension when they retired.
Of all the generations it seems that Gen X are in the worst position overall when it comes to their retirement.
Although the much younger Gen Z (who are aged between 15 and 25) might not be far behind them. According to the Pensions Policy Institute, Gen Z workers are delaying starting their pensions, or only contributing the minimum because of existing debts, including student debt, high rents and saving for a house deposit.
With their state pension age already at 68, over 50% have accepted that they will have to continue working beyond then.
However, 25% of Gen Z say that they would use a financial adviser and only 15% say that they would seek advice from social media. Only 6% said that they would not seek advice from anyone.
It’s not just pension savings where there is a disparity. According to HMRC data, so called Baby Boomers (who are aged between 60 and 80) have on average £53,000 saved in ISA’s. Whereas Millennials and Gen X have £10,000 saved on average. Five times less in savings.
Pension Review recommended Providers
According to Defaqto (who run one of the industry’s most used pension review research software systems for financial advisers), some personal pension providers are recommended much more than others. Their top 10 shows that the 4 most popular providers are well ahead of the rest. With Royal London personal pensions clearly leading the pack. This does not mean that they are the best of course.
Any pension provider recommendation would always be based on your personal circumstances, but it does show that their product is popular with advisers.
The top 10 based on the percentage of adviser recommendations from the Defaqto software is:
- 33% Royal London
- 18% Aviva
- 17% Quilter
- 11% Prudential
- 5% Transact
- 4% Scottish Widows
- 3% Aegon
- 3% Abrdn
- 3% AJ Bell
Who is your pension with?
Improvements in pension transfer times
Some of the value placed on pension providers by advisers is also based on their administration, not just fund performance. It’s all well and good having great funds, but if you can’t get hold of the provider to deal with transactions it can defeat the benefits.
Most of the providers on the list will have helped to bring down the average pension transfer time, which has improved to 12 days on average. With simpler transfers taking an average of 10 days according to data for 2024. This covered over 1.5 million transfer worth over £65 billion.
However, the step before the pension transfer continues to be a big issue.
That is the time taken to process Letters of Authority (LoA’s). These are the documents signed at the initial pension review which give your advisor the authority to ask about your existing investment and pension arrangements. Currently this process is taking an average of between six and ten weeks which is clearly to the detriment of clients because the adviser can’t even begin to undertake any work on the advice until they receive the information.
FT Adviser are currently spearheading a campaign to improve the LoA process and reduce timescales.
Pension investments
When it comes to pension investments. Over 50% of savers say that they would prefer their pensions to be invested in UK companies. As long as the investment returns were good of course.
But over 60% admitted that they didn’t know where their pensions were invested. To be honest neither do I really! Interestingly, 70% said they were concerned about climate change and investments. But only 16% said that they would accept lower return for green guarantees.
These things are always covered off in a pension review with your financial adviser.
