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Out of their depth and needing advice

Ireceived a phone call a few days ago from long-standing friends, an ordinary couple who have worked hard, brought up three children and, in John’s case, had a successful career culminating in the position of director of a spec-ialist contractor to the construction industry.

John is due to retire shortly and has been in his company’s finalsalary pension scheme for nearly 30 years. In addition, he has built up a reas-onable-sized AVC fund and also has personal pensions from previous employment. The phone call was because my friends were looking for professional advice on their retirement options and wanted to know if I could recommend a suit-able adviser.

Both are well educated and financially astute but having looked at the paperwork and spoken to a few people, they realised they were well out of their depth.
What has shocked them was the capital value of John’s finalsalary pension, which is over £1m. For those of us in the pension business, this will come as no surprise but my friends were amazed that the biggest single asset they have, or have ever had, was a pension.

This made them very nervous about making decisions that they realised would affect their income and capital position for the rest of their lives, without exploring thoroughly all the options with someone they felt confident had the right expertise and was someone they could trust.

There are many people like John – senior public sector workers and those in manufacturing or commerce that have benefited from an era of generous pension schemes and growth in property prices.

They are often referred to as baby boomers and here are some recent statistics that I found interesting:

  • Baby boomers control 80 per cent of UK wealth, built on the back of soar-ing house prices. They make up about 28 per cent of the UK population
  • 13 million people will reach age 65 over the next 20 years
  • One in 10 of 50-year-old clients will live to be 100 or over
  • Inflation at just 3 per cent would halve a fixed retirement income in 23 years
  • 25 per cent will enter long term care.

Even for clients who are not baby boomers, recent pension reform and further proposals coming down the line mean that almost everyone planning for their retirement needs advice. Every one of the following points provides an opportunity to have a conversation.

  • Introduction of auto-enrolment/Nest
  • Changes to state pension age
  • New pension funding limits
  • Age 75 rule ceases April 2011
  • Changes to draw-down/Asp
  • Tax/credits changes

And it is not just about opportunities. Advisers have a duty to make sure that clients are kept up to date with the changes to help them find the most effective way of dealing with them.

Fay Goddard is chief executive of the Pers-onal Finance Society

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