Pensions crisis to get significantly worse warns panel of experts

Prudential Retirement Income Panel warns further falls in saving are inevitable and sets out action plan to reverse the trend.

An influential panel of financial experts hosted by Prudential has predicted the UK’s retirement income crisis is set to get even worse.

The panel has highlighted three major issues which it says are clouding the retirement horizon of millions of Britons:

The decline in occupational pensions which pay up to two-thirds final salary

The Baby Boomer generation (those aged 50 – 65 years-old) cashing in on their housing equity to pay off debts and help children get onto the housing ladder, thus eroding potential retirement income pots

Younger generations are saddled with student debts and struggling to get on the property ladder, leaving many avoiding making any retirement provision

The combination of these factors is fuelling a potentially catastrophic income and retirement crisis for the future and the panel, consisting of leading IFA’s, industry product providers and retirement experts, is calling for Government and the financial services industry to work more closely together to find urgent solutions.

The key recommendations made by the panel included:

Jargon and product transparency

The industry is too reliant on language that people don’t understand and reducing financial jargon and simplifying product information to open the financial and investment market to a wider number of consumers is critical.

Greater access to financial advice

The panel called for more access to financial education and more wide spread availability of financial advice to all income groups, with the panel calling for a particular focus on educating Briton’s in lower income groups who often receive little or no financial advice.

Best practice from other countries

Government and industry need to look at examples of best practice from other countries, including the Australian model where Government-backed helplines provide free advice on pension and retirement planning.

Increased use of wrappers

The panel called for greater use of asset / wealth wrappers, whereby consumers can readily see the wealth built up across all their different asset classes – from their property to their pension funds – which will make them more engaged with their financial planning. The panel also believed it would make it easier for consumers to seek financial advice because, in demonstrating more clearly their overall wealth, advisers will see them as being a more attractive proposition and will be more willing and able to provide holistic financial advice.

Inflation-proofing investments

The panel called for far more to be done to ensure Britons understand the effects of inflation on retirement income and future proof their pension funds and financial arrangements accordingly.

Below are quotes from all the Prudential Retirement Income panelists:

Gary Shaughnessey, Prudential Retirement Income Panel host and Managing Director of Prudential Life & Pensions stated: “There’s a great deal of education that needs to be done when it comes to retirement income planning. The average male aged 60 retiring today will live to 85, but their expectation for how long they are going to live is 75. The average pension pot at retirement is £25,000. It is stunningly low.

“Inflation across the economy is around 2.5 per cent but between four and six per cent for retired people. There is a complete lack of awareness of the impact that inflation will have on people’s retirement income generally. This is a huge issue that we talk about a lot but it still has not reached the consumer consciousness to the extent it should have.”

Tom McPhail, Head of Pensions Research at Hargreaves Lansdown agreed: “I don’t believe the current retirement savings situation is as bad as it is going to get. I think we are storing up problems for the future. The lack of inflation-proofing being built into pensioners’ incomes is a serious problem.

“I think we are slightly living on borrowed time and pensioners’ incomes are going to be a big problem in 10 years time.”

Paul Fife, Managing Director of IFA Equus stated: “People are not given enough skills to deal with money. Advice is being forced upmarket. You need to start planning your pension when you start working. Most people have no idea how difficult it is to build up a pension.

“At the bottom end of the market there is no advice and British people just don’t save.”

Jon King, CEO SHIP stated: “To some extent this is Golden Age of occupational pensions more generous than they have ever been in history. People who are in their late 40s or early 50s are unlikely to have the generous occupational pensions. What they are likely to have is property.”

Matt Ward, Head of Pensions at Defaqto said: “It is clear that people like the idea of being able to look at all their assets in one place. The success of internet banking shows that.

“Internet banking has been a huge success partly through offering the ability to look at all your finances in one place. The introduction of some kind of wealth / asset wrapper would be a positive step forward.”

Stuart Bayliss, Managing Director, Annuity Direct, stated: “Recommendations produced by IFAs have to be at least 12 pages long. Nobody reads that. Even with the best will in the world they are going to glaze over in that process.

“We have got to take things back down to a more simplistic level. Pensions should not be seen as an investment decision. They are essentially a life decision. Everything we do makes it more complicated.

Steve Lewis, Regional Director Intermediary Sales, Prudential stated: “A lot of interest is focusing on the inflation climate and there is particularly concern about it in the run-up to retirement.”

“My main concern is that the only point people take advice is at the point of retirement when advice should be taken long before that.”

“Are we talking about breadline provision for retired people or improving people’s lives?”

The panel’s conclusions are going to be shared with other industry decision makers with the aim of initiating industry wide debate about future pensions planning and provision.