Article by Phil
The government changed the rules on pension contributions, but is pension advice being taken up?
Perhaps not according to research by Saltus Wealth. They found that only 30% of High-Net-Worth Individuals (HNWI’s) had taken up the opportunity to increase their pension contributions over the old limit of £40,000 and less than 10% had contributed up to the new maximum level of £60,000.
They also found that the average size of the HNWI’s pension pot was under £500,000 which is less than most commentators had expected. The average pension pot is currently £130,000. On current rates that would provide a retirement income of only £525 per month.
It seems that the cost-of-living rises are impacting even the highest earners.
It certainly has for lower earners. There are increasing calls for the government to look at more flexible state pension retirement solutions. With the state pension age expected to be 71 by 2050 there are concerns that an increasing number of workers will be unable to work until then because of ill health. At the moment if you defer your state pension beyond retirement age you get a higher payment when you take it. But there are currently no options to take the state pension earlier.
According to Aegon, 50% of adults don’t actually think that there will even be a state pension by the time they retire and less than 20% think they could live off the current state pension anyway. They might be right with the National Insurance fund surplus forecast to have been eaten up by the mid 2040’s. Not too long away. Early pension advice therefore remains key.
Measures to consolidate small pension pots would help.
There are currently over 16 million small pension pots in the system, with less than £2,500 in them, many of them unclaimed. The government is currently looking at ways to solve this problem. That includes proposal to attach pensions to individuals tax records so that they can be carried to new employers automatically to prevent them being “lost”. The latest idea suggests that this should be mandatory until the pension receives a certain size at which point people could then choose to move them to a provider of their choice after they’ve taken pension advice.
Currently over 75% of people retire from work altogether when they reach state pension age. However, things are expected to change. Research shows that 50% of under 40’s expects to carry on working and 20% of those expect to set up their own businesses. Some of the change in attitude is probably down to the value of pensions in the future. With final salary schemes all but disappeared in the private sector people can expect lower retirement pots from their autoenrollment based schemes. Someone starting work on £25,000 paying into their pension via the current autoenrollment scheme would expect a retirement pot of just over £450,000.
Still, Standard Life found that most retirees (42%) wished they had taken pension advice before they retired. Over half wished that they had started to save for their retirement much earlier, hoping for a £250,000 pension pot rather than the £130,000 average.
Sadly, according to the FCA themselves, nearly 40% of people start to draw their personal pensions without taking pension advice from a pension advisor or other specialist. This figure is even higher when the pension pot is worth less than £50,000.
Of those accessing their pensions for the first time, nearly 60% fully cashed them in. Whilst only 8% bought an annuity to give themselves an income for life. Worryingly, less than 50% of people who bought an annuity took independent financial advice. This suggests that they accepted the annuity offer from their pension provider. Given that this is a one-off purchase of an income for life, it makes sense to take advice and compare the options available across the market.
