Article by Mhairi
Taking advice on pension contributions is vital according to HMRC.
According to Fidelity, HMRC confirmed that 60% of higher rate tax payers aren’t making any contributions into a pension. Alongside 50% of self-employed workers.
Over 160,000 self-employed workers paying higher rate tax are also not making any pension contributions. Why? They obviously haven’t had any advice on pension contributions to explain the benefits of a pension. Or that pension contributions would reduce their tax bill as well. According to Pension Bee 75% of self-employed workers weren’t aware of this!
On the other hand, the figures show that self-employed workers are 20% more likely to own their own home.
When it comes to employees the picture is totally different. Nearly 90% of employees regularly pay into a pension. Including higher rate tax payers. That clearly demonstrates the success of the auto enrolment scheme.
Women paying more in pension contributions.
Women in particular are making up for lost time. According to Pension Bee, women over 40 paid more into their pensions last month than men did. That’s the first time ever. A year ago, women’s contributions were only 60% of men’s. Despite this, women on average have pensions less than half as big as their male counterparts.
But younger workers are being left behind.
Under 30’s are also not taking advice on pension contributions for the future. According to the Society of Pension Professionals (SPP), 40% of younger workers said that pensions were not on their priority list. 30% said it was because they couldn’t afford to make contributions.
Pension Bee found that 40% of people wouldn’t cut any of their expenditure in order to pay into a pension. But 60% would swap a form of savings across into a pension if they understood the benefits.
Under 55’s are also in danger
According to the Social Market Foundation, many under 55’s are also at risk of a difficult retirement. They estimate that 7.5 million people between 45 and 60 have an inadequate pension to maintain their current standard of living. In addition, 2 million of those have no equity from home ownership to help them either.
A third are expected not to have enough pension to meet minimum living standards.
In fact, 85% of people are at risk.
The problem is that millions don’t realise what is coming and think they are better off than they actually are. So, it’s always a good idea to get advice on pension contributions sooner rather than later. The Foundation recommends a big hike in auto enrolment contributions as a potential solution.
Charles Schwab found similar results in their Money Mindset survey. They found that 46% of people didn’t think that that they had saved enough for a comfortable retirement. Worse, a third had no pension at all.
40 is the target age.
The Liberal Democrats have tabled a motion in the Lords to amend the Pension Schemes Bill to include free financial advice for everyone over 40. Whether this will find any traction is unlikely, but its important that the issue is being discussed. The advice wouldn’t be compulsory but would be available to everyone. The idea would involve Pension Wise and Money Helper, but in reality, neither of these organisations have the skills to deliver advice.
The answer probably lies with the introduction of simplified advice, which is on its way after the FCA published its guidelines for providing a simplified offer. The Banks are expected to step into this space.
AI could help.
The FCA and the government are both hoping that AI can also help to close down the advice gap. Tools like Chap GPT are now readily able to provide answers to questions about financial planning. The problem is how accurate the answers are. Currently the estimate is that 50% of the answers are inaccurate in some way, although that is improving.
AI can be very useful to help people to understand financial jargon. But advice and recommendations are a different thing altogether. There are already calls doe AI providers to be regulated where their answers tip over the line into the provision of advice. Watch this space.
Get more information.
If you need advice on pension contributions, then why not contact Christina today. She offers a free initial meeting to discuss your requirements and explain how our service works. You are under no obligation to use us after that if you don’t want to and we won’t pester you.
So why not call us today on 01282 614444 or e mail us enquiries@ccfps.co.uk or use our contact form online.
