IFAs are busier than ever thanks to Pensions Freedoms, but how are clients affected

IFAs are busier than ever thanks to Pensions Freedoms, but how are clients affected

Since April 2015 Pension Freedoms have allowed people aged 55 and over to have far more flexibility with their Defined Contribution pension (for example, personal pensions, stakeholders and SIPPS). It was the most significant pension legislation change for decades.

Recent HMRC data shows that almost 1.8 million people have withdrawn more than £17.4 billion in flexible pension payments since it came in to effect. During the first quarter of 2018 alone, 222,000 people have withdrawn £1.7 billion; a lot of money and an awful lot of people, often needing advice.

Naturally, Pension Freedoms have presented people with significant opportunities, but there are a few downsides to consider also. First, the positive;

1. Early retirement
Gone are the days of picking a date and buying an annuity; flexible income from 55 enables people to retire sooner, only making withdrawals required at the time. Importantly, you then receive continued investment returns on the remaining fund, prolonging its longevity.

2. Moulding your income
Only making withdrawals when required leaves a larger fund and minimises income tax. Of course, you also have the flexibility to withdraw as much as you like for bigger purchases. You need to plan appropriately, but Pension Freedoms give you the ability to mould your income as you see fit.

3. Leaving a legacy
Purchasing an annuity secured an income for life, but when you died (and if you died prematurely) your family wouldn’t typically receive anything from the annuity provider. Some had five year guarantees; for example, if you died two years in to retirement, they would continue to pay income for the remaining three. Others provided a spouse’s pension, but no annuity gave the opportunity to pass a legacy to younger generations. Now, any remaining pension fund is paid directly to the nominated beneficiary when you die.

Increased flexibility also encourages people to save more in Defined Contribution schemes, safe in the knowledge it’s accessible. As pensions are not typically liable to inheritance tax (IHT), this may reduce the potential IHT bill on your estate.

Now, potential issues;

1. Too much, too soon
In 2014 Steve Webb, former Pensions Minister famously said pots can be used to buy Lamborghinis, sparking a big debate on squandering savings. It may feel like a lottery win at 55 (especially if you’ve transferred your Defined Benefit pension), but you must consider the future, as research from Royal London found the average person will need to accumulate £260,000 to enjoy a basic retirement.

Three points to consider;

Realistic life expectancy: Research from Retirement Advantage found that nearly 80% of people over the age of 50 significantly underestimate their lifespan, putting them at a serious risk of an income shortfall.
Hidden costs: As an aging population we are living longer, less healthy lives. The Money Advice Service estimate the average nursing home to cost around £40,000 a year, which would make a serious dent in your pension fund.
Inflation: The FCA have very recently published the final report of its retirement outcomes review, finding that 33% of non-advised drawdown consumers are wholly holding cash. Considering inflation, in real terms, that will have a detrimental effect on the funds purchasing power. Inflation is arguably the biggest ‘hidden’ cost.
Predictable, reliable retirement income is essential. Some annuities are still available, but rates are at an all-time low thanks to the available alternatives. Retirement options are therefore much more complex, and the solution is proper financial planning.

2. Making the wrong decision
Partly attributed to inflated transfer values but enabled by Pension Freedoms, between 1st April 2017 and 31st March 2018 72,700 people transferred out of a Defined Benefit (DB) pensions. The total value was approximately £14.3 billion.

The British Steel Defined Benefit scheme (BSPS) hit the headlines for all the wrong reasons, and the subsequent Work and Pensions Committee enquiry found that members had been exploited for cynical personal gain by dubious financial advisers and represent another major mis-selling scandal.

Unsuitable advice on DB transfers is not confined to BSPS members. Research by the Financial Conduct Authority shows that only half of such advice nationwide meets its standards. Making the wrong decision could be ultimately very costly, missing out on a lifetime of guaranteed DB income.

3. Doing nothing
Hindsight is wonderful thing, but missed opportunities could be as detrimental to pension savings as poor decisions. The only way to mitigate against either is to engage professional financial planners. We will work with our client, helping them plan for the next stage of their life; avoiding the pitfalls and keeping them on track.

Request a callback

    What do our clients say?

    • Thank you Paul for visiting my home recently for a dig through our various life insurance policies.

      I left my wife to run the meet and greet and she was very impressed with Paul's analytical approach, obvious knowledge and professional yet friendly manner.

      We were very happy that Paul was able to advise us on a type of cover we should be looking for and presented us with option on policies that were much more useful and with much cheaper premiums. Paul even made the form filling as simple as possible and for that we are grateful.

      The Gibsons

    • I was extremely pleased with Iain Parkhouse's service and have no hesitation in recommending and referring his services. If you have not spoken to him recently, I would strongly suggest arranging a review with him.

      Denni Jackson, Sales & Marketing Director, Drifters Travel

    • I have known Iain Whitechurch for over 10 years now and he always provided me with expert advice on my investments and mortgages. He is a true expert in his field. Iain's knowledge and experience is backed by his pleasant and professional approach. Iain always listens, he understands well what I am trying to achieve and he works in a very timely and efficient manner. Nothing is too much trouble for Iain. I wouldn't hesitate to recommend his services and indeed I have to a number of my friends.

      R Thompson, M.D. London

    • Iain has spent quality time with me to understand my situation, my preferences, and my approach to investments. He has a great way of explaining things, and de-mystifying the most complex of matters and distilling it into something very easy to comprehend so that you can make informed decisions over your own financial affairs. Whatever your level of understanding and financial experience, he will adjust his approach and tailor it to suit your individual needs, taking time to be sure you are fully up to speed with whatever you are reviewing. Having worked with a number of IFAs in the past, I now feel totally at ease and confident working with Iain on an ongoing and regular basis to navigate the minefield of professional financial advice and financial services.

      S Khadka-Lowe, Director. Cobham

    • For almost 20 years I have used the services and advice from Iain Whitechurch, the services offered included, mortgages and re-mortgages, children's saving plans and pensions in the main.

      The advice was always given at a level that was understandable and appropriate for my financial situation at the various times though out the last 20 years, which due to unforeseen circumstances has been ever changing.

      Along with the expert advice and service Iain has become an integral part in my financial future plans and decisions. He has also offered this same advice to my now adult children as they have always known him and trust his ability and advice. I have no reservations about recommending his services to family and friends, his friendly yet professional approach make dealing with financial decisions a less stressful experience.

      A Scutt, Specialist Nurse Manager, Copthorne

    • Every quarter I get information on how my investments are performing in relation to other investments in the portfolio in addition I can look up on the web to see how my interments are performing in their own right on a daily basis. Thanks to Felix I now have greater confidence in my financial future and I look forward to doing more business with him in the not too distant future.

      Calum Shaw

    • Gerard is a highly professional and knowledgeable financial adviser who I would unquestioningly recommend to anyone for advice and help. Picture him as an intrepid jungle guide, cutting a swathe through an otherwise thick, uninviting and seemingly tangled financial world and you won't go far wrong. He's helped my wife and I for a number of years and remains our go to adviser.

      Andy Cutbill, Co-Founder of Mr Bridger, ECD at ?What If! Innovation Partners

    • Having used Brian's services on several occasions for myself, my friends and various colleagues I declare myself a great admirer of his professionalism and knowledge. And an all-round nice guy! If you are looking for an IFA - look no further, you've found the best one.

      Dallas Van Renselar

    • Iain is an honest guy who cares about the service he provides to his clients. His advice is always clear & well thought through.

      Stuart Gilbert

    • I gladly recommend Iain for his work as a financial adviser for me and for many other people I know within our network of friends and business colleagues. Above all, his knowledge of what is available and his expert opinion and advice has been, and continues to be completely reliable. I believe Iain delivers top quality as a person and within his business.

      Gerry Boniface, Sales Leader

    • I have known Iain Whitechurch for over 10 years now and he always provided me with expert advice on my investments and mortgages. He is a true expert in his field. Iain's an expert in his field. His knowledge and experience is backed up by his pleasant and professional approach. Iain always listens, he understands well what I am trying to achieve and he works in a very timely and efficient manner. Nothing is too much trouble for Iain. I wouldn't hesitate to recommend his service and indeed I have to a number of my friends.

      R Thompson

    • I first hired Felix in April 2011 to arrange my critical illness cover. Now I am notoriously hard to pin down to arrange stuff like this due to my constant work load. Felix was totally understanding of this and his incredible perseverance with me resulted in finally securing an excellent policy for me in March 2012. Felix visited me at my workshop on a number of occasions to gain all the relevant information that he needed. I cannot thank Felix enough for his hard work and patience and will be glad to recommend him in the future. And he makes a damn fine cup of tea as well!

      Richard Wallage

    Sign up to our newsletter

    Please click this box to confirm you fully understand and accept the Privacy Notice. Click here to read our privacy notice.