Article by Phil
According to 7IM, more people will be able to access advice from an Independent Financial Adviser over the next five years.
They estimate that over 12 million people who currently do not use an Independent Financial Adviser, will be able to get help using new technologies. This is expected to be the upside of the Financial Conduct Authority (FCA) amending their approach to regulation. It’s expected that the FCA will relax the tight rules covering advice in response to the governments drive for growth. Over the last five years regulation has become more of a burden on firms including the introduction of the Consumer Duty last year. It looks like this will change. Hopefully for the better, giving more people access to the advice they need. Especially at retirement.
Find your lost pension pots
Millions are in need of advice at retirement. It’s estimated for example that 80% of people are not confident that they know where all their pensions are. The Pension Policy Institute thinks that there are over 3 million “lost” pension pots in the UK. These could be worth over £31 billion at an average of almost £10,000 each. Your first port of call should be the government’s Pension Tracing Service. Although there are other commercial companies offering a tracing service. Like Raindrop which claims to have found over 40,000 pensions worth £500 million.
To help improve the situation the Government has announced that it will introduce a small pot consolidator. This organization will manage the consolidation of any small pension pots under £1000 in conjunction with the Department of Work and Pensions. Although people will be able to opt out of the arrangement.
This looks like a good idea which could be expanded if it works well.
It won’t fix the problem with pension transfer delays though. 15% of Independent Financial Advisers have had to wait over 12 months for a pension transfer to go through. The longest wait was three years. The industry is calling for a 10-day pension transfer guarantee to be brought in. There is no reason for clients to have to wait so long to switch.
Become more pension wise with an Independent Financial Adviser
Research by Aviva found that over 50% of people said that they were “knowledgeable” about pensions. With 75% of under 35’s saying that they knew what they needed to do when it came to pension savings.
However, under closer questioning people’s real understanding of pensions started to unravel.
- Nearly 50% didn’t know the difference between a Defined Contribution and a Defined benefit pension scheme.
- 20% had no idea what a workplace pension was.
- 60% didn’t know that they got tax relief on pension contributions and less than 10% knew how much this was worth.
- 80% said that they didn’t know that they could change and manage their pension investment strategy and 80% had never actively managed their pensions.
- Over 50% had no idea how their pension funds were invested.
Unsurprisingly, those using an Independent Financial Adviser knew more than their non advised colleagues.
Demand to see an Independent Financial Adviser is also at an all-time high according to Flagstone. Over 50% of advisers are reporting an increase in enquiry numbers and over 60% say that their clients value their advice even more than in the past. The main two reasons seem to be concerns over the first Labour budget and their tax implications. Along with concerns about global uncertainty.
Uncertain Pension future.
There are, however, real concerns about whether the UK’s current pension system is sustainable in its current form. In an article in FT Adviser, Andrew Martin of Dunstan Thomas set out some stark warnings for the future. Back in 2000 there were four workers for every retiree, in 2040 there will only be two. That means that not enough people are paying in to support the system. Couple this with the simple fact that people are living longer and there is a real pension problem.
Some radical changes will be required. These might include:
- Increasing minimum pension contributions to 15% of salary or higher.
- Raising the state pension.
- Means testing the state pension.
- Removing the state pension triple lock.
- Changing the way final salaries are paid to civil servants.
None of which will be popular. But there are now 9 million people who will retire with private pensions of less than £6,750. Some as low as £3,000.
Using an Independent Financial Adviser to get ahead of the issues is a good idea.
