Pension revolution - no advice, 'guidance' is the new buzzwordPosted on: 02 May 2014 by Gareth Hargreaves
As part of the pension reforms, pension advice is to known as guidance and it should be free! How exactly is that suposed to work?
George Osborne’s pension revolution will not be unveiled completely until early next year. By April 2015, all the consultation will have taken place and the smallest of the small print will have been added to the many regulations and rules.
All those approaching retirement with a pension pot can receive independent financial “guidance” regarding the best way forward – it was to have received “advice”, but the watchword is now “guidance”.
While the figures will be numerous and the options varied, there is one number that will make the whole process much more meaningful – how old will you be when you die!
The reality of mortality may not be uppermost in the minds of those planning and hoping for a long and happy retirement, but knowing how long you’ve got (or might have) is a crucial element in your pension strategy.
Stephen Webb, the pensions minister, has indicated that pension guidance from next April will include an estimate of how long you have got left. Pensioners will be provided with a rough life expectancy guide; factors to be taken into account will include lifestyle (whether you smoke) and where you live.
There are other personal circumstances that can assist in making an educated guess over an individual’s life expectancy.
“What we do know,” revealed Stephen Webb, “is people underestimate how long they’re going to live.”
That’s a problem for Mr Webb and the government. Critics of the Chancellor’s pension changes claim they will lead to a reckless spending spree by the older generation, who having blown their pension pots, will then become dependent on the state.
Mr Webb’s comment immediately after the Budget that it was entirely up to the individual if he or she wanted to buy a Lamborghini with their pension money probably didn’t help.
His view, as is the Chancellor’s, is that those who have spent a lifetime being prudent are unlikely to suddenly lose the plot and leave themselves financially vulnerable.
Mr Webb doesn’t want a precise figure given to those who consult an Independent Financial Adviser for guidance.
“That would be crass and insensitive. I don’t think it would be tailored to the individual,” added Webb. “There are tables with life expectancy, based on gender, location, lifestyle, etc.”
Then there are the personal circumstances and background that are relevant to the individual seeking advice.
“At 60, most people will have parents still alive, so the best guide they’ve got about how long they are going to live is their grandparents. That’s two generations ago, so they underestimate how long they are going to live,” explained Webb.
The Office of National Statistics’ recent figures give male life expectancy in the UK as 78.9 years and an extra 3.8 years (82.7) for females. But those figures are higher for those who have already reached the age of 65. And, because men tend to be older than their wives, widows can expect to spend many years on their own.
Location also plays a part. On average, someone living in the South West will live 1.9 years (male) and 2.2 years (female) longer than if they are based in Scotland.
It is a guessing game in many ways and, as ever financially, you have to hedge your bets. That’s when a specialist adviser can make a real difference. They will help you hope for the best and prepare for the worst, as well as making sure any sudden change to your circumstances does not leave you with fewer options. Flexibility is a key requirement in the twilight years.
You can find out for yourself, if you want. Go online and there’s a host of “How Long Will I Live” life expectancy calculators. You can live to be a 100 and get a telegram from the Queen if you tell a few fibs about your past lifestyle and your intention to keep to a healthy regime from now on.
A recent study by University College of London revealed some startling results for those who could not perform three simple tasks at the age of 53.
The tasks were i) getting out of a chair quickly; ii) giving someone a strong handshake; iii) balancing on one leg for up to 30 seconds with your eyes closed.
Three passes and you are likely to have a long and healthy life; those who could not pass any of the tests at the age of 53 had over 12 times higher death rates by the age of 66 compared to those able to perform all three.
Dr Rachel Cooper, who led the study, explained: “Even at this relatively young age, these measures identify groups of people who are less likely than others to achieve a long and healthy life.”
It is clear that an accurate report of your physical condition will be just as valuable as a precise financial assessment when discussing pension options with your IFA.
Mr Webb is right. It is very easy to underestimate your lifespan. There are over 13,000 centenarians (those who’ve hit 100) in the UK now – the actual figure was 13,350 in 2012 – and at least 660 had reached 105. The number achieving 100 has risen by 73% in the past decade.
Buckingham Palace is now sending out around 10,000 laser-printed royal 100th birthday cards a year.
There are half a million people in Britain who are aged 90 and above. The good news for men is that now women only outnumber them in that band by 2.5 to 1. A decade ago it was 3.3 to 1.
Great news in many ways, but it is also a bright flashing light regarding a rapidly growing ageing population that is going to spend decades in retirement.
These pension changes will give them much greater control over these retirement years, but it is a revolution that cannot fail because the consequences would be horrendous.
That’s why the chancellor and the pension’s minister want everyone with a pension pot to have independent “guidance” before making any decisions. They also want that guidance/advice to be FREE. Exactly how that is to be provided is still in the consultation stage.
As with your health, there’s a lot the individual can do to keep in a good financial condition. But expert guidance is always useful. Your IFA may not always look like a personal fitness trainer, but they are there to give the same expert help so that your financial situation remains in robust shape.
The value of shares and investments can go down as well as up. Your home may be repossessed if you do not keep up repayments on your mortgage.
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