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Auto pilot

If the EU had not made this exception for the UK, many employers would have closed down contract-based schemes such as group personal pensions, estimated by Mercers to be about two-thirds of employer-offered pension schemes, and moved to a personal account trust-based structure, which would undoubtedly have made people worse off in retirement with the proposed lower contribution rate.

I have spent years helping companies comply with stakeholder rules and have persuaded them to offer excellent pension schemes with reasonable employer contributions. Without auto-enrolment, employees would not get round to completing the complex application forms or would respond that there was little point in joining the employer’s group personal pension as they would be leaving the company soon for a better position.

I can recite the names of these ambitious people who are still with the same employer and still not benefiting from the employer’s contributions. Auto-enrolment on all employer pension schemes with a positive opt-out facility will be one of the best things to happen to UK pensions.

As we look forward to thousands and thousands of people being automatically enrolled in pension schemes, we should ensure that once people are automatically made to join, we treat the accrued pension funds at retirement in a manner that also treats the client fairly.

Let me tell you a story. My uncle is a clever chap and recently announced that he will be retiring on two-thirds final salary. He never felt he had to take advice on his pension funding as he knew he was lucky to have a pension fund this large. When we went on to discuss how he will remain a higher-rate taxpayer due to his pension income level, he was shocked, as nobody ever told him that he will lose a big chunk of his pension to 40 per cent tax. When I asked him how he was to draw his pension, he looked at me as if I were mad. “From the pension scheme provider, of course,” he replied.

The open market option is high on the FSA’s radar under the TCF remit. Annuity providers have until December to improve how they communicate with clients about how they take their pension income. UK life expectancy has reached its highest level and men aged 65 can expect to reach 81 while women aged 65 can expect to be with us until they are 84.

It will be a start to a better future if pension offices are open and honest about encouraging clients to go elsewhere to secure their retirement income. Due to changing socio-economic factors, there is no doubt that there is an increased demand for a new breed of retirement-focused products. Enhanced, impaired and specialist annuities are all seeing increased demand as better rates are sought for clients. As we get access to more specialist and flexible alternatives, this is where whole of market independent financial advice is invaluable.

I will leave you with a final thought. Surely, if we have auto-enrolment in company pension schemes when employees start work, we should have an automatic open market option facility at the end of a person’s working life?


Pension switch for LibDems

LibDem Shadow Work and Pensions Secretary Danny Alexander is to leave the role to be chief of staff and chairman of the party’s manifesto-writing committee. Cardiff Central MP Jenny Willott takes over.

World view

It would seem that the expanding fund universe should offer plenty of choice for advisers. However, the fund universe isn’t really growing, at least not as much as one would expect, considering that there have been nearly 500 launches in the past five years. Numerous closures have kept the overall number of funds fairly consistent for much of the past decade.

Abe and Modi

Investment ideas to power returns

We believe the most exciting stockmarket opportunities today are in those places where a new generation of leaders are successfully transforming economies and companies in favour of investors. In a new investment guide and website, which is suitable for use with your clients, we set out our views on these reformers. Click here to find […]


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