Article by Phil
Latest research from Boring Money shows that the self-employed need pension transfer advice now more than ever.
- 34% of self-employed workers currently have no pension
- Despite making up 13% of the overall workforce.
- Of those who have a pension 76% don’t pay anything in.
- Only 18% actively pay into their pension every month.
- Auto enrolment is working however with 64% of 18- to 24-year-olds saving into a pension. Although the average value of their pensions is only £26,000 compared to £127,000 for 55- to 64-year-olds.
- Almost 60% of all pensions are worth less than £20,000.
- 10% are worth less than £5,000.
- Almost 33% of workers now have more than two pensions and for those earning over £70,000 the average is seven pensions. This has led to three in ten taking pension transfer advice in the last year.
- There are over 3 million 45- to 54-year-olds with multiple pensions which might benefit from consolidation into one place.
- 17% of over 55’s say they are going to need financial advice in the next 12 months. That’s 1 million people.
Of course, there is always the state pension which will top up any personal pension or workplace pension provisions. According to forecasts by LCP, the triple lock pension promise will cost the treasury £8 billion next year. That’s based on calculations from the Office for National Statistics (ONS) which show that wage inflation was 8.5% in the last year. Under the triple lock this will mean the same increase in state pensions.
If that’s the case the new state pension will increase by just over £900 a year and the old state pension by nearly £700 a year.
But according to Aviva, everyone in the private sector is likely to face a difficult future in the next 30 years. By 2050 its estimated that there will be no more Final Salary Pension schemes, only Defined Contribution schemes. Based on current trends Aviva is concerned that these won’t support retirees. According to figures from their own clients:
- 60% were choosing drawdown options at retirement
- Some were then withdrawing funds at rates of between 8% and 16% each year which are clearly unsustainable.
- At an average drawdown of £55,000 per year
- Despite the average pot only being £225,000, which would not sustain the PLSA’s minimum pension requirement of £23,000 per year.
Which is partly why The Pensions and Lifetime Savings Association has just written to all the major UK political parties calling for a major reform of the UK pension system before the next general election. They are supported by many of the leading pension organisations including Age UK, the Association of British Insurers, The Peoples Partnership and many others. It’s over 20 years since the last major reforms were implemented. The proposed Pension Charter would mean that more people were able to access pension savings products and benefit from better pension transfer advice.
Going back to the need for pension transfer advice, Nextwealth have found that those who call themselves financial advisers have clients with less money than those who call themselves financial planners. Even though 60% continue to call themselves financial advisers. The number are quite startling. Financial Planners say that their clients have over £450,000 in investments compared to £230,000 for financial advisors.
Nextwealth also found that financial planners tend to offer holistic advice and over 50% use cash flow modelling with their clients. Financial Advisers on the other hand tend not to look at holistic advice and seem to be more transactional.
Only 5% of financial advisors called themselves wealth mangers, however. This is a term used mainly by St James Place to describe their restricted advice service.
Perhaps we need to start calling ourselves Financial Planners because we only offer a holistic advice service.
It doesn’t matter what you call yourself though when it comes to securing investments information from providers. Research from LangCat found that some advisers are waiting 60 days for Letters of Authority to be processed. That means the information requested for clients to be processed in order to allow potential pension transfer advice to go ahead. In the best-case scenario, it took 10 days to be processed. Nine out of ten advisers interviewed said that the process frustrating for clients and took far too long.
