Pensions simplification has not made things simpler and put people off pensions say financial advisers

2nd April 2013

It is seven years on since pensions were simplified or at least that was the theory. However a survey by unbiased.co.uk has found that 83 per cent of financial advisers believe the system is now more complicated than it was when it was reformed in 2006.

Part of the problem has been that since simplification, there have been more and more changes. Some of them have been welcomed by investors such as the decision to reform compulsory annuitisation. However cuts to the overall amount you can save in a pension in a lifetime and in a year have proved less popular.

It is not surprising that 33 per cent of advisers believe that cutting the annual pension which is currently £50,000 but due to fall to £45,000 has damaged pension saving most. Half of advisers want the Government to leave pensions alone for the next five years.

Some 26 per cent advisers believe that A-day simplification itself has damaged pension saving. Some 18 per cent say the decreasing the lifetime pension tax-free allowance currently 1.25m but due to fall is to blame.  One in ten financial advisers (10%) said scrapping the default retirement age of 65 has had the biggest negative effect suggesting that some people may be aiming to work longer.

Decreasing the annual pension tax-free allowance 33%
A-Day 26%
Decreasing the lifetime pension tax-free allowance 18%
Scrapping the default retirement age of 65 10%
Creating a flat rate state pension 8%
Capped drawdown 5%

 Despite current poor annuity rates, 66 per cent of financial advisers still believe that a pension is a good method of funding retirement, while 28 per cent say they would recommend ISAs as an alternative method of pension saving.

The main objection financial advisers say they face from clients about retirement planning is loss of confidence in pensions (60 per cent) while 17 per cent said clients were put off due to poor annuity rates and a further 15 per cent said it was due to a lack of disposable income.

Some 26 per cent of financial advisers think that retirement planning should be included in financial education in the national curriculum and 21 per cent think that businesses should offer employees retirement planning advice from a financial adviser, as part of their benefits package.

Karen Barrett, Chief Executive at unbiased.co.uk says: “The UK pension system has dramatically changed over the last few years; with different Governments come different ideas and it’s unlikely that this will cease.  What’s clear is that relying on the state will not provide you with a comfortable retirement and the trend of moving the responsibility of the funding of retirement from state to individual is one that is sure to continue.

“People saving for retirement need to make their own provisions and decisions based on their own financial circumstances.  But you don’t need to be an expert in retirement planning yourself – that is what professional financial advisers are there for.  Of the nearly 500,000 searches going through our ‘find a professional adviser’ search every year, the top area people have sought advice on has consistently been retirement planning, clearly highlighting just how important this area is.”

10 thoughts on “Pensions simplification has not made things simpler and put people off pensions say financial advisers”

  1. just a thought says:

    Hi Shaun,

    Your blog’ title today “The European Central Bank is singing “We just haven’t got a clue what to do” is reflecting accurately the state of play…

    The Fed is tapering…. French banks exposure to Russia is around $50Billions (It was about $70Billions French banks to Greece… Actually around 150 Billion EU banks’ exposure to Russia)… To quote Roger Waters (Amused to death)…” Give too much rope and they’ll f*** it up”!!!

    1. Anonymous says:

      Hi Just a thought

      You make a good point about possible European banking exposure to the Ukraine and Russia. For a start there were the links between these areas and Cyprus which I guess is a reminder that when you luck is out it is really out. But I guess others will catch up with you and add up the exposure in total. Also the are the economic effects of the situation in the Ukraine and Russia to factor in.

      On that subject I worry about RBS which seems to have a finger in the pie of every economic disaster story…..

  2. dutch says:

    ‘So we see that a clear result of ECB policy has been to push narrow
    money growth higher but it has struggled to transmit that to broad money
    growth’

    Which says it all in terms of confidence.I’m still struggling to understand the bigger picture-hence my presence here I guess-but this does seem another example of the velocity of money drying up signifying a drop in confidence.
    Is velocity going down a symptom of a broader loss of confidence?

    Is it a sign of people spending moeny more carefully?

    it makes me nervous when you see such a large figure for M1 growth given how the money multiplier is meant to take over :-)

    1. Anonymous says:

      Hi Dutch

      The debate between wide and narrow money measures has gone on for as long as I can remember. I can remember studying the issues when the UK debated using £M3 or a monetary base measure like Switzerland did back then. We choose £M3 which then struggled hence Goodhart’s Law!

      If we fast forward to now we see that central banks have mostly lost control of the wider measures as if they press on M then see V falling. But they have more success with narrow measures as they can push them harder.

      As to your nervousness well it is possibly the road to hyperinflation. That is not on the horizon yet (I have argued all along that it is a danger on the margins and not in front of us). But whilst the mainstream view is that it has disappeared I think that the chance has risen from say 5% to 10%. As ever such a thing is an educated guess at best….

  3. shrimpers says:

    Shaun, as the ex 3 year Ltros approach maturities perhaps the benefits to liquidity or capital ratios are negligible, indeed raising structural capital is extremely expensive, far easier to deleverage. On top of this, as you pointed out with BoE FLS to SME, the prospects for business is dim indeed…why lend/expand balance sheets in current environment especially with the impending banking union/ECB SRM & SSM assessments imminent

    The rapid reduction in excess liquidity has provoked upwards volatility in Eonia and thus Euribor – for the time being the ‘threat’ of further measures e.g. Rate cut, is preventing a complete embarrassment for the ECB. How long this holds, Lord alone knows…

    1. Anonymous says:

      Hi Shrimpers

      The business lending issue is often one of regulators insisting on banks holding a lot of capital against it (in the UK this could go as high as x9 or x10). Something could be done about it if they really wanted too, perhaps they are afraid that it would open up more divergence in the Euro area as some countries do lend and other do not..

      The factor which has gone the way of the ECB is falling bond yields especially in the periphery as the Spanish 10 year fell below 3% on Friday. But the lesson of QE is that whilst governments benefit from this the impact on the real economy is much less. So as you say the ECB is sitting on top of a bubbling pot.

  4. therrawbuzzin says:

    The melody is clear, but the harmony is missing.

  5. Noo 2 Economics says:

    And the BOE are singing “we haven’t got a clue either!” But seriously a question arises as to what the populace/non financial institutions intend to do with all that M1 growth. If they intend to spend spend spend (which is the indication imo) “there are reasons to be cheerful” as the populace probably prepares to start spending.

    I wonder if the repayments of the LTRO are related to BASEL III as the banks gear up for the next round of stress tests and don’t want potential liabilities in the form of interest payments (no matter how low they are) sitting in their accounts?

    I also wonder about Euro companies productivity per capita. If they have spare capacity why borrow more money to increase productivity before they maximise utilisation of existing resource?

    Can’t make a valid judgement until there are answers to my “wonderings”.

  6. Anonymous says:

    Where are the euro politicians ? all pulling in different directions according to their conflicting national interests. What a rum set up.

  7. Anonymous says:

    Hi Forbin

    Should the future be a yo-yo path as I expect then the dips will be accompanied by ever more accomodative monetary policy. For the ECB this would mean more LTRO’s/QE and negative interest-rates and I see it being not far off neck and neck with the Bank of Japan on that front.

    So yet again the financial economy would be supported. The catch is that the real economy has seen much more minor gains from such policies as we observe that those who argued that monetary policy would be weaker in its effects as we approach the zero (interest-rate) bound were correct.

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