Low income pension savers receive the least financial planning help of all savers, according to Living Time, a retirement income specialist.
Peter Quinton of Living Time says pension savers with low incomes often have little awareness of the benefits of financial planning and “apathy” towards shopping around for the best investments.
He says: “Only 35% of people are shopping around. It’s only wealthier people who have good financial advisers. It’s those who are lower down, as far as funds are concerned, who don’t.
“The biggest fault is they don’t realise the commercial difference it can make to them.”
He also says the proposals in June’s Retail Distribution Review (RDR) for a simplified regime may worsen the situation for those seeking to convert modest pension pots by further reducing their options.
He says: “The RDR proposals assume some advice is better than none when what these people desperately need is independent advice on the whole range of options on probably the biggest single investment they will make.
“A key aim of the open market option review must be to solve the problem that those who need to make best use of every penny of pension saving currently get the least help.”
Quinton also says companies deal with pension savers’ needs “as quickly as possible” because of the limited commission available and retirees’ reluctance to pay fees.
He says they are “funnelled towards a self-select, tied or multi-tied default option of lifetime annuities, or simply left with their existing provider.”
Quinton adds pension savers should wait longer before buying a lifetime annuity, which is optional until age 75.
He says people should not lock themselves into an investment they cannot restructure as life expectancies rise and individual circumstances change.
He says: “There is no compulsion to buy a lifetime annuity until age 75 and many would benefit from keeping their options open.
At age 75, roughly halfway through the average retirement, lifetime annuities become more attractive because the returns are higher and people have far better visibility over their future income needs. The key for us is to make sure retires know they exist.”
Pension annuity volumes have risen steadily since 2002 when pensioners took out £7.2bn of annuities, according to data from the Association of British Insurers (ABI).
Pensioners took out £7.8bn of annuities in 2005 and £9.5bn worth in 2006. Savers bought £2.6bn of annuities in the first quarter of 2007 compared with £1.7bn in the same period last year.
To comment on this story contact:
Tel: 020 7034 2679
E-mail: [email protected]
View from the front row
Project Libra unveiled
Including SJP and investment trusts
Spent two years at Sanlam
Will also assess FCA's actions