Recent research from Prudential shows nearly half of 45 to 49 year-olds and two-fifths of 50 to 54 year-olds are unaware of the rise in the minimum retirement age from 50 to 55 which comes into effect on 6 April this year. Colin Simmons highlights the importance of making clients aware
With the increase in retirement age soon coming into effect, advisers are in a good position to help prepare their clients for this rule change. But while many advisers have readied themselves and their clients for the transition in April, there are still some who have yet to contact their relevant clients.
Adviser roundtables carried out with Prudential at the end of last year revealed that advisers are divided in their opinions as to whether the rule change was an opportunity to engage with clients or another piece of unnecessary legislation.
While many advisers had done nothing to tell clients about the forthcoming changes, the majority were aware of the change. Surely those who have taken steps to contact clients will almost certainly have received extremely positive thanks for the warning.
Those advisers using the age change as an opportunity to contact their clients will have found further scope to carry out client reviews and generate more pension business at the same time. The others are potentially missing out on a gilt-edged opportunity to engage with their existing clients.
Some advisers said simply that none of their clients have pensions with a selected retirement age of 50 to 55. Although this may be the case, it¹s likely that the terms of many pension contracts will include a clause that says clients are allowed to access their pensions should they need to from age 50.
Treating Customers Fairly
In the spirit of treating customers fairly, a best practice action is to at least write to clients and let them know of the change, particularly because their circumstances could have changed since they originally invested in the pension, or had their last review.
Some advisers will have a handful of clients that fall between these ages while others may have hundreds, even thousands. With this in mind, most product providers have created support material such as client approach letters that can be used by advisers to cover themselves under Treating Customers Fairly.
Advisers who have already contacted clients will be on fairly safe ground but there may be ample opportunity for further client engagement. This may be particularly appropriate for advisers who have a large number of clients whose circumstances may have changed since they were last contacted. They may even welcome the chance of a review, especially as their fund is likely to be higher.
Essential points for advisers
1. Clients under 50 could be thinking about taking benefits from that age. With interest rates on their mortgages possibly lower than in the past, there may be a chance for these clients to fund more into a pension or perhaps alternative products that would allow them some access at age 50 such as ISAs
2. Consider the number of clients who are aged between 49 and 54.
3. Clients aged under 55 in their current circumstances may want access to their pension commencement lump sum (PCLS) if given the option.
4. Consider how many of these clients can be certain that their circumstances will remain the same in the next five years and that they won¹t have any nasty surprises when they try to access their PCLS.
5. Some clients who want access to their PCLS now may want access to potentially more PCLS in the future.
Early access to cash
The cash release market used to have some stigma attached to it after some firms were fined by the FSA for poor financial advice. It was once perceived as the poor man¹s drawdown market with clients accessing their pensions to pay off debts rather than to fund their retirement, but things are different now.
Imagine a self employed builder who runs a successful building firm employing staff. Due to the credit crunch he cannot get access to short term money to pay wages or buy materials to finish the current job, but he does have a SIPP worth £400,000 allowing him instant access to £100,000.
One of the most important legislation changes at A-Day was the ability for an individual to draw cash from their pension on a nil income basis. This has increased the appeal of drawdown to many as the risk has reduced, and especially because some providers can now apply a capital guarantee to their fund.
One thing for certain is that there are many things that advisers can do to help their clients as it is critical that they do get advice. Now is an ideal time for advisers to contact their clients to help guide them through the changes.
With all of this in mind, this legislation change begins looking increasingly like an opportunity knocking but act now because the deadline is fast approaching.
Colin Simmons is business development manager for retirement income at Prudential
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