Nicola Barker, Senior Partnership Development Manager, St. James’s Place Wealth; Martin Clark, Director/Lead Tutor, MLC Associates; and David Owen, Wealth Director, Lifetime Connect discussed the current state of the retirement market in a recent London Institute of Banking and Finance webinar.
Mr Clark commented on the numerous legislative changes – pension freedoms, changes to the annual and lifetime allowances and state pension age changes, to name just a few – and suggested that these could lead to public disengagement.
Presenter John Somerville replied to Mr Clark by saying that it was all “genuinely challenging” for anyone who didn’t have a financial adviser.
Mr Clark also suggested it was disappointing that the numbers of people in workplace pensions had not increased by as much as had been anticipated. 77% of employees were in workplace pensions in 2019, and the equivalent figure in 2012 was 47%.
Mr Owen presented the following statistics, taken from Financial Conduct Authority data:
- Average UK pension pot – £61,897
- Average annual income from a pension pot – £2,500
- Average annual contribution – £2,700
- Proportion of pensions accessed following receipt of advice – 48%
- Total tax taken as a result of withdrawals in excess of the lifetime allowance – £185 million (2017/18 tax year alone)
- Most common withdrawal rate – 8%
Mr Owen said that 3% to 4% was generally felt to be the sustainable withdrawal rate if we make the conservative assumption that the individual might live a long life and their retirement would therefore last 30 years.
Mr Owen concluded by stressing the benefits of commencing retirement planning early in your working life, certainly by the age of 30.
Ms Barker began by saying there was no indication, at present, that the Government was planning to change the tax relief regime. Instead, she commented on how the recent Budget froze the lifetime allowance at £1,073,100 for the next five years. She said that this could act as a disincentive for traditional pension saving and make property investment and other alternatives more attractive.
She continued by saying that Covid-19 has led to more pension pots being accessed, perhaps to address short-term financial needs, but this will have longer-term consequences for those who do so.
Ms Barker then said she believed financial advisers had an “immense responsibility”, as their client is likely to have a “finite set” of assets that then has to last for the rest of their life.
Her final point was that advisers should note that annuities still have a role to play in the modern retirement planning landscape, especially for clients with a limited capacity for loss.