Recent figures published on the average pension pot a 66-year-old has at retirement make for very uncomfortable reading. To compound the bad news further, it now appears that just over 50% of the public have made no provision outside of the state pension.
The Pensions and Lifetime Savings Association (PLSA) have issued a report stating that the average amount sitting in pension pots after a lifetime of savings is £55,900. If we assume a draw down rate 3% a year, that produces the paltry sum of £44.75 a week.
The PLSA goes on to advise that a retiring couple looking for a “comfortable lifestyle” needs a pot of at least £590,000. Some future pensioners are heading for a big shock.
Others have also commented on the matter:
The FCA have noted their concern about the lack of advice given by the industry for retirement planning: of all pensions accessed in the year, 48% were done without any independent, professional advice.
HMRC have commented that the average annual pension contribution is only £2700.
The FCA further noted that the average draw down on a pension pot is 8%, not between 3% and 4% as recommended by the industry.
Penfold, the pension provider, said that in an extensive survey of the pensions market, 58% of respondents had no idea what their pension pot was worth, and 20% of respondents felt that a pension pot of £100,000 would give them a comfortable life style.
And gender appears to add further to these concerns. Legal and General says that one in four women over the age of 50 has less than £5,000 in their pension pot.
Frankly, it seems to be clear that the industry is not making enough headway in giving support to people who are planning and accessing pensions.
How have the financial services industry, the regulator and the government collectively allowed this to happen? The government and the regulators have a duty of care to ensure that the public are protected and educated and should also be taking steps to ensure people know the pitfalls of poor pension planning. And they should be encouraging the industry to support them in this. The industry itself should “know its customers” and their needs and be lobbying and promoting greater pension provision.
Why haven’t any of them achieved any real impact to change the “outcome”, (per FCA’s preferred terminology)? Probably, because it’s easier for financial planners, wealth managers, IFA’s, etc to undersell than oversell. When faced with a customer who has real short-term needs, such as saving for a holiday, a car or a wedding, it’s far simpler to give them what they want. It is much harder to point out what they need.
The crux of all good advice is of course letting the customer decide, but only after explaining the difference between what they need versus what they want. It may be a subtle difference to some and it may also be one that customers struggle with. They are being asked to forget the “here and now” and focus on the needs of the future. But for the customer faced with the day-to-day reality of life, the cost of living, mortgage payments, child care and the rest, not so easy.
It might be nice to think that the Regulator would not actually add to the difficulty of getting the wants versus needs decision across to a customer. Unfortunately, the Regulator’s very own rules have done just that, being over-concerned with mis-selling and commissions. Desperate to discourage unnecessary sales they have adopted practices (such as disclosure requirements), that defy common sense and actively discourage pension sales.
A classic example is the commission disclosure required of an adviser selling a pension product. Simply stating the commission charge is not enough. As if to exaggerate this charge, they must reimagine this figure by advising the customer that if they had not paid the commission, but instead invested that amount over the life of the product, say 25 years, it would have produced £X. This notional figure doubles or trebles the true cost of commission and makes the sale incredibly difficult. Can you imagine any other industry being forced to disclose their commission in such a way?
This doesn’t appear to worry the Regulator, that same Regulator that likes to judge the financial services industry’s compliance with its requirements not just by industry actions but by “outcomes”. When it comes to the measurement of the success of their own governance processes and the impact their actions have had on the public’s provision for their pensions, they seem to have forgotten their preference for looking at outcomes.
And the government has taken little action to help deal with this conundrum. Worried by some imagined “political correctness”, they are clearly deeply reluctant to support bankers or anyone associated with them.
We seem to have reached an impasse. Without the government, the regulator and industry working together, it is hard to see how this situation will ever be addressed. But given that those pension pots of £59,000 will now be ravaged by inflation, somebody needs to carry this torch.