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Bridge the gap

Four IFAs set out their manifestos for boosting pension saving.

The pension crisis is now part of the common vocabulary and countless solutions have been offered by a variety of interested parties, including politicians, trade unions and pension providers. But if IFAs were to set the agenda, what would be their proposals to close the yawning gap in retirement savings? We asked four advisers for their ideas.

Syndaxi Financial Planning director Robert Reid breaks down his pension manifesto into three key planks – scrapping the state second pension (which he describes as “bankrupt”), a shift in the language used to talk about pensions and the Government being honest with the electorate about what it can and cannot afford in the future.

Reid says it is essential that the public are spoken to in a language they can understand when it comes to pensions. “Consumers are currently so focused on spending, we need to discuss pension savings in terms of what you can end up spending the benefits on. There is a huge difference between what you say to clients to be compliant and what you say to them to be communicative,” he says.

Reid believes the significance of language as a barrier to pension savings might be grasped if the experts sitting on Government pension committees had meaningful experience of sitting face to face with consumers.

He adds: “The Government needs to say there is no man on a white charger who is going to make the state pension sufficient and many people are underestimating their longevity by at least five years.”

Hargreaves Lansdown pensions development manager Danny Cox believes that the state second pension should be axed to achieve greater simplification, along with the pension credit and minimum income guarantee, instead ensuring that the state pension is paid up to Mig levels.

“I would also like to see more flexibility on pensions in terms of the way money is moved in and out of schemes and where the cash can be invested, for example, offering the freedom to include residential property in the mix,” he says.

Cox suggests that one of the biggest and arguably most overlooked obstacles to pension savings is that many people who would be looking to start their pensions in their late 20s or early 30s are instead wrestling with student and consumer debt. Many of these individuals are unable to get a mortgage big enough to buy their first home, which is typically their first financial goal. They might be professionals and decent earners but regular pension contributions are often a distant dream for these would-be savers.

Cox says: “We really need a new approach to those who have amassed serious levels of graduate debt.”

Ashley Law director Jock Cassidy says there needs to be a realisation that, given the slightest excuse, many people will avoid making pension savings. “Consumers have let themselves be very strongly influenced by the struggling stockmarkets of the last few years as well as pension misselling. They take comfort in these factors giving them a reason to do nothing about their retirement income,” he says.

He feels it is time for personal financial education to be included in the national curriculum but fears that the only answer to the savings gap will be to force people to save in their employer’s scheme.

Selling and advice are factors that are central to Cassidy’s manifesto. “The best way to make pensions work is to pay a salesman to sell them. Pensions need hard-nosed salespeople to get people to sign up to contracts,” he says.

Raising the price cap on stakeholder is a start, says Cassidy, because neither providers nor advisers currently have enough of an incentive to manufacture and sell the products. The cap will be raised in April but life offices will not be able to increase their charges on existing stakeholder contracts.

The Government has said the level of the charge cap will be reviewed after three years if the increase fails to have an impact on distribution to low-income groups. Cassidy says, for this target audience, more tempting tax treatment of pension contributions will not act as an incentive. Instead, he believes pensions might be more attractive if the amount of tax-free cash was raised to 50 per cent.

Informed Choice managing director Nick Bamford supports scrapping the state second pension and raising the basic state pension. He says: “If people want more than this, they should start a private pension, simple as that.”

Although he believes that widespread simplification would help bring an end to the pension crisis, Bamford is unsure that next year’s changes will deliver this.

He praises stakeholder for cleaning up product design but says there should be greater scope for an initial charge to ensure enough providers and advisers operate in the market and bring long-term savings to the original stakeholder target market.


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