With all the fuss about auto-enrolment compliance, many seem to have forgotten why anyone would save into a pension. It is simply to provide an income in retirement. So why do many employers either completely abandon employees at retirement or, at best point them in the direction of an IFA? Why not take the process by the scruff of the neck by funding and appointing an independent adviser. This is after all the most important financial decision the individual will ever make.
The costs of providing annuity advice at retirement to retiring members is around £400-£500. If employees accept the existing scheme’s offer, around 90% plus will miss out on the best rates.
I have been discussing this with a potential large client and was amazed to hear that they have almost one thousand retirements a year and only three of those have used the appointed IFA. I did a bit more digging and found out that while the employer went to a great deal of trouble to organise the service, no funding was provided. As a result, virtually all the members accepted the existing insurer’s offer.
The existing insurer is a good pension provider, but has a very limited approach to enhanced annuities. Therefore, it is highly likely the employees all got standard terms. Based on the fact that we get over 65% of our clients enhanced annuity terms that pay an average of 20% more than standard terms, this means these individuals will have collectively lost millions.
This is an employer that makes a significant effort, but did not fund advice. As a result, their loyal hard working employees have made an expensive mistake that will affect them for life. I appreciate this is extreme, but it does happen.
On the opposing side, we have a privatised utilities company that has been a corporate annuity client of ours for many years. They fund annuity advice for all retiring members. As a result, 98% get formal advice based services over the phone. The employer pays a modest fee per member, regardless of the fund size. For those members that want further services or wish to pursue income drawdown or other more advanced options the employer fee is offset against the costs and the member pays the balance.
We provide the employer with monthly management information and updates as requested. This simply works well and everyone gets the most suitable retirement solution available. The total costs are modest and the members feel like they have been looked after, rather than abandoned at retirement. Should such a solution be made mandatory? Should we see auto enrolment leading to auto retirement advice? Naturally, I hope so.