There are real dangers here for advisers already exposed to post-RDR discussions about their own adviser charges, as well as the increasingly unbundled platform and fund manager fees. Tough discussions over pensions illustrations have just become even tougher. Will it inevitably lead advisers to select funds attracting lower charges, but a correspondingly poorer track record; or worse, will it undermine advisers’ ability to command a fee based on a reasonable 1 per cent of the value of the investment?
Will this move push more retirement savings out of pensions for good? Isas certainly start to look even more attractive, partly because they are not exposed to inflation adjustment and the wider spread of growth projection numbers, and limits on Isa-based annual savings continue to rise at a cracking pace.
The danger is clear. This change, running nearly simultaneously with newly enforced charges transparency from RDR; and the March Budget announcement of full access to your pension fund from the age of 55 (from 6 April 2015); creates a heady cocktail which could lead to the most significant decumulation of pension assets in history at exactly the time when more people than ever are reaching retirement age.
My argument is that a reinvention of the pension scheme is long overdue, but let us not throw the baby out with the bath water. Advisers need to help their clients to manage an increasingly complex mix of assets and income streams, which those of retirement age will be drawing on. I believe advisers have a pivotal role to play in helping their clients to manage changing income requirements through much more prolonged retirements. Income may come from a mixture of an annuity, income drawdown, perhaps property lets, Isa savings and the state pension. Inheritance windfalls are much more likely to arrive in the midst of retirement for Baby Boomers and Generation X pensioners after them, complicating financial planning in retirement still further.
I believe all this change presents retirement savings advisers with a massive opportunity to re-engage their customers on the subject.
The Pensions Policy Institute written evidence to House of Commons work & pensions committee (dated 21 April 2012) determined that there are a range of factors that will need to be considered in order to ensure good outcomes from defined dontribution pensions for members. These can be summarised as::
1.When your start your pension: The sooner the better to maximise the time available for the fund to grow, and it is also valuable to minimise non-contribution periods as much as possible.
2.Contribution rates: The more that is added to savings in a pension the greater the likely final fund value will be.
3.The age you plan to retire: The longer the fund has to grow, the larger the fund value will be at retirement.
