But Will There Be Enough Quality Advisers To Help Savers, Asks Pensions Expert At Irwin Mitchell

The approach of April 5th and introduction of the new highly heralded "Pension Freedoms", together with recent announcements on pensions in the Budget, represents the biggest shift in pensions policy since the war, according to Martin Jenkins, Head of Pensions at Irwin Mitchell.

The Government has torn up the rule book on pensions. There will now be a scramble by those wishing to realise the cash locked up in their pensions and the sums involved are huge. UK employers (many of whom are struggling to fund long term pension liabilities) stand to benefit from the exodus since the cost of providing long term salary related pension benefits has, and still does, represent a huge liability for UK plc. 

The Government’s own figures (PPF: 2015) identify pension liabilities of £1,300 billion, with an operating deficit of some £40bn. These are quite conservative figures based on the Government Pension Protection Fund Safety Net provision which does not guarantee all of the benefits. If only a proportion of final salary pension scheme members decide to transfer so as to encash their pension rights, then the funding gap can be dramatically reduced.
 
But at the same time, as Jenkins points out, there is an advisory gap brought about by separate government changes to the financial and pensions advisory market. These changes now move away from commission based products to all advice to be paid for as a fee and this very much increases compliance and training requirements.  

Expert Opinion

“The reforms to the financial advisory industry were very much needed. In the past there was too much selling of pension products on a commission basis representing poor long term value to pension savers. However, introducing large scale pension reforms (and they don’t get much bigger than these) in the context of a sea of changes to the pensions advisory market, ends up in a position where the consequences of one change might undermine the ambitions of another.

"In order to encash pension benefits individuals will need to find a financial adviser - yet in the wake of the government changes to the financial advisory scene huge numbers of independent financial advisory firms are closing down or exiting the market. Individuals who want to find a financial adviser will see that on the high street far fewer firms are still there. Many of these firms were owner managed businesses and are simply not geared up to work on a fees based advisory basis nor have the resources to support the training in compliance requirements of the new regime.”

Martin Jenkins - Partner

This situation is exacerbated  by the recent Budget announcement that the reduction in the Lifetime Allowance to £1 million will mean that for many more pension savers, tax charges on pension funds mean an encashment looks even more the more attractive option.

Expert Opinion

"This is a difficult choice for many pension savers. An awful lot depends on what individuals want to do in retirement and how long they are expecting to live. Guaranteed pension schemes related to salary have become extraordinarily expensive as individuals are living longer and remaining healthy in their retirement years. However, those same factors also mean that individuals will be attracted to encash their pension pots to spend as they wish in retirement. Don’t just move to a small apartment in Spain and eke out an existence on a modest but guaranteed income - instead, buy a bar or a restaurant there at current knock down prices and run that as a business in retirement. Many will be attracted by this sort of option and the fact that employers have a positive incentive for staff on long term pension funds to take up this sort of option may mean they assist in promotion of the choices accordingly.

"We are on the brink of a generational shift with a great many choosing to take the risk of long term provision in order to get at the valuable underlying funds needed to prop up even the most modest pension policies."
Martin Jenkins - Partner