Pensions ‘Perfect Storm’
   Looms For Unprepared



A ‘PERFECT STORM’ of demographic, individual and financial elements is poised to derail people’s retirement plans in the UK unless they prepare properly now, a global survey from HSBC Insurance has revealed. 

The fifth annual Future of Retirement study, It’s Time to Prepare, shows that globally:

·   people’s short-term survival strategies in the midst of recession are creating a serious long-term pensions ‘downturn deficit’

·    there is a continuing lack of pensions planning, even though people are aware that they are likely to live longer

·   this is being exacerbated by poor levels of financial understanding, education and access to advice

·   while people are more concerned with protecting their pets and possessions in the short-term than ensuring they can look forward to a secure life after work.

The consequence of these combined issues is that many people in the UK will struggle to make ends meet when they come to retire, unless they urgently review their priorities and planning.  

Stephen Green, Group Chairman of HSBC, said: “A perfect storm is confronting pensions planning, created by an ageing population, falling pension funds values, a drop in state and employer contributions and an economic downturn which is forcing people to make tough financial choices. 

The preparedness gap
It’s Time to Prepare has identified a ‘preparedness gap’ in people’s pensions planning across the world with nearly 9 out of 10 people not feeling fully prepared for their retirement.  

The Future of Retirement survey, which questioned 15,000 people in 15 countries, making it the largest study of its kind in the world, shows that in the UK: 

·  Only 25% of respondents feel fully prepared for their retirement

·  76% do not know what income they will receive in retirement

·  Only 38% feel they fully understand their long-term finances

·  Approaching half (43%) have undertaken some planning for later life, but still remain unclear about what their retirement income will look like

·   13% have done no retirement planning at all 

Stephen Green continued: “The ‘preparedness gap’ reveals that families in the UK need greater support and guidance to effectively handle their finances, not simply in schools and colleges but through ‘trusted advisers’ providing professional financial guidance. 

“If people prepare adequately for the long-term an extended later life can present a golden opportunity for many – but now is the time for people to seriously consider boosting their pensions contributions to improve their prospects of a comfortable retirement. The cost of procrastination is likely to be high.”

Advice gap opens up
It’s Time to Prepare also reveals a parallel ‘advice gap’ in the UK linking a lack of preparedness to insufficient financial education and guidance: 

·   More than a third (37%) have never had any form of professional financial advice

·   While a third (33%) feel ‘fairly’ or ‘very’ unprepared for their retirement

·   More than half (56%) of respondents have never had any form of financial education

·   Only 5% realised they would need to buy an annuity when they retire. 

Clive Bannister, Group Managing Director, HSBC Insurance, said: “The Future of Retirement report this year reveals the need for people to have access to more and better financial advice and guidance to help them survive the downturn while making the right financial decisions for the long-term.” 

Coping with the downturn – pets not pensions?
People are paying little attention to long-term considerations such as their likely retirement needs, focusing instead on purely practical short-term concerns which they better understand, It’s Time to Prepare reveals.

General insurance solutions – motor, travel, home and even, in the UK, pet insurance – are seen as a greater priority than addressing longer-term needs around insuring health or income, even when job security is in question.

Despite global economic uncertainty, only 2% in the UK intend to take out income protection insurance in the next 12 months, compared to 7% who will be insuring their pets.

The Future of Retirement survey shows, as a result of the economic downturn, that in the UK: 

·  87% of people have changed some element of their finances

·   Only 18% will now retire as planned

·  14% are reducing retirement savings or stopping saving for retirement altogether

·   19% have used savings to pay off debt

·   11% expect to delay their retirement  

Mark Twigg, Director at financial services consultancy Cicero Consulting, which undertook the survey for HSBC Insurance, said: “It’s Time to Prepare reveals the lack of understanding people in the UK have around their long-term retirement needs. They are less well educated or aware when trying to understand these needs and to act on them, than with their short-term requirements.  

“As the economic ‘perfect storm’ threatens it is important that people are encouraged to understand long-term risks and to manage them effectively. While people are taking more responsibility for themselves, there is also a definite role for financial institutions to continue, and to build on, their work to educate and inform.”

 

   
    Poor Health Could Be
       Good For You

Pensioners with medical conditions and smokers could get guaranteed pay rise for life. But too many missing out, warns Rockingham Retirement  

- Pensioners losing out because they do not declare they have a medical condition

-  Impaired annuity can add significant income based on lower life expectancy

Pensioners are missing out on substantial sums in pension benefits because they do not disclose their health conditions to advisers, warns independent retirement income specialist Rockingham Retirement. 

Rising incidents of diabetes and high blood pressure – linked to more and more people becoming overweight – means that more pensioners should be able to buy an impaired annuity.  

A snapshot survey conducted by Rockingham Retirement revealed* that up to 70 per cent of people applying for an annuity are unaware they can maximise their chances of getting a higher income by revealing any medical conditions. 

“Many people simply do not realise they can significantly increase their retirement income if they have an illness or smoke,” said Rockingham Retirement managing director Steve Hunt. 

“Take the example of a Mr Smith, a lifelong smoker with Type 2 diabetes: this typical profile candidate could increase his £3,162.84 a year pension income to £3,714.12 a year (based on a typical £50,000 pension fund) - an increase of over 17%.  

“In other words, Mr Smith has qualified for a 17% pay rise, for the rest of his life. We have a number of clients whose incomes have increased by over 100% - and all because of a health condition. 

“Yet we regularly see examples of people – most of whom desperately need higher income – taking what they are offered from their original pension company,” added Hunt. 

“More often than not this will not include any enhanced rates for smoking or illnesses. And those that do ‘seek advice’ do not go to a specialist retirement income broker; it is a bit like going to your GP to have open heart surgery,” he said..

Generally, the more serious the condition, the more money the applicant should get. Those suffering from non-insulin dependent diabetes and occasional angina - two very common conditions suffered by those in their mid-60s - could boost pension income by more than £2,000 a year with an impaired product.

“The actual rates payable do depend on the actual illness and the severity of the condition, but if you don’t ask you don’t get,” said Hunt.  

“These increased rates are applicable because of a shorter life expectancy, and the fact that any annuity payments are anticipated to be payable for a lesser period of time. It makes sense. What does not make sense is that so many people are in the dark about the fact that they can do so much better by shopping around for the best deal.”

Rockingham Retirement recently conducted a survey of its clients, where it found that it had typically increased clients’ incomes by more than 30 per cent by trawling the market.

“Our research shows that we can typically increase the level of annuity income by about £1,000 a year on the average pension fund, but a major problem is getting the message to people that they do not have to take the first deal they are offered,” said Hunt.

Rockingham Retirement, which has long campaigned for faster pension transfer times, recently announced the scrapping of its standard £195 administration fee to convert all pension funds of £20,000 and under to an annuity.

“We can always be relied upon to search for the highest annuity rates on the market, and we guarantee to find the highest income possible – at no cost - regardless of the fund size,” added Hunt.