This month's Suffolk Life Research Centre focused on statutory money purchase illustrations and assesses how Retirement Planner's readership views their role
Statutory Money Purchase Illustrations (SMPI) are sent to clients on an annual basis to demonstrate the amount of future pension that might become payable under the scheme in ‘real terms’ As with previous research projects we sent out a short questionnaire to our readership and in this instance we received completed responses from 154 respondents.
The first question we asked the advisers was what percentage of client assets under management do they have in SIPPs? The responses were wide ranging with 15% of those providing a response saying they had no client assets in SIPPs while 9% said between 76-100% of their client assets under management were in SIPPs. Of those remaining, 10% said 51-75% of client assets under management were in SIPPs while 16% said between 26-50% of client assets were invested in this way. The bulk of the responses came in the 1-25% category with 24% of respondents saying between 1-10% of client assets under management were invested in SIPPs while 26% said it accounted for between 11-25% of client assets (See chart one).
The importance of SMPIs
The second question posed in the survey was to try and gauge how vital a role SMPIs play when working with clients. Advisers were asked to rate their importance on a scale of one to five with one being not at all useful while a rating of five showed SMPIs playing an essential role. Unfortunately 32% of those who responded said SMPIs were not at all useful when working with clients with a further 27% rating their importance as a mere two out of five. A further 23% took the middle ground by giving their importance a rating of three out of five while 7% viewed them as more important with a rating of four out of five. Even though the vast majority may have been lukewarm in their response to using SMPIs it is important to note that a sizeable minority (12%) did still rate SMPIs as playing an essential part in their work with clients (See chart two).
After gauging the level of adviser engagement with SMPIs it is also important to try and establish their importance to clients. The next question we asked the participants was whether they felt clients engaged with their SMPIs and used them to make decisions about their retirement planning. Unfortunately only 28% of those who provided a response said they felt their clients did engage with their SMPIs while a whopping 72% said they did not believe this was the case (See chart three).
How reasonable are the assumptions?
After establishing that the majority of advisers and their clients were not actively engaging with their SMPIs it was also important to try and establish why this would be the case. The next question we asked was whether the advisers felt that the statutory assumptions contained within their SMPI were reasonable and to highlight which ones weren’t. Fourteen of the responses we received said they thought the assumptions were reasonable. However, some of these responses came with caveats with one survey participant saying the assumptions are reasonable but only if properly explained while another participant said they were “ok for what they do.” However, another participant described the assumptions as “reasonable but pointless”.
Several of the participants said they felt the assumptions used were too high with one participant saying promoting growth figures of 7% is wrong particularly with a client who is invested in cash or bonds. Another adviser said quoting a real rate of return of 4.5% is too high in the current low inflation/low economic growth background we are currently experiencing. One adviser said they found that all assumptions used in the illustrations have “unsettled clients as they are all unrealistic”.
How can SMPIs evolve if they are to be relevant going forward?
So, given that advisers have so far been fairly lacklustre in their approach to SMPIs, what can be done to help them become relevant going forward? The participants posted many different ideas for how this could be done. One adviser said more realistic assumptions needed to be used with another saying the credibility of these documents depends on these figures being revised. Another adviser said client education would be an important factor going forward if SMPIs are to be more closely engaged with. They highlighted the need for these documents to be more “straightforward and simple” in the future. One adviser said more emphasis should be placed on highlighting what the future retirement income would equate to in today’s terms. By doing this the adviser said the SMPI could have more of an impact than they currently do.
The need for simplicity was also a common theme with several advisers discussing the need to make these documents easier for the client to understand and digest. However, there were also calls for more information with one provider calling for the need for stochastic projections to be used to show a range of possible outcomes, while another adviser said SMPIs should be more closely tailored to the specific client’s needs and circumstances.
EIS and Seed EIS sectors
'Truly making a difference'
Avoidance, evasion and non-compliance
From 6 April 2019