To Maximise our clients
Retirement Income

It would seem an obvious objective for a company of ‘Independent Financial Advisers’ and an even stronger motivation for 100% of the UK population making retirement choices.

So why do so many people not consider this very question at the critical point of retirement?

Why do so many simply take the retirement choice offered by their existing pension provider without any reflection on the possibility of achieving higher levels of income elsewhere?

In most cases an assessment of retirement choices enabling clients to gain access to potentially higher levels of income can only be made once…it’s an irreversible decision. If the opportunity to review is not taken…it’s simply lost!

There’s no going back!

People save for years, over their working lifetime into pensions to produce a fund that can be legitimately traded in an ‘Open Market’ at retirement, allowing them to gain access to highest possible levels of income.

Yet at the very point when the most important financial review of an individual’s life should take place, which could add literally thousands of pounds in income per annum to their retirement…. People decide not to bother!

Why?

It’s a very good question!

Let us try to answer this question for you and pose some other questions, which you may have considered, but not yet answered in relation to your retirement planning:   

Pall Mall’s ‘12’ Retirement Questions!

1. What is retirement today?
2. Are you aware of the potential increase in ‘Retirement Income’ from your pensions by ‘Shopping Around’ at retirement?
3. Are you in good health?
4. Are you confused by the retirement choices you will need to make?
5. Have your pensions ‘Management Charges’ reduced as your pensions have increased in value?
6. Are you aware that conciliating pensions can simplify your life, reduce management charges and bring you closer to your retirement planning? 
7. When was the last time your personal ‘Risk Profile’ was reviewed?
8. Are you aware of the ‘Asset Allocation’, ‘Fund Selection’ or ‘Performance’ within your pensions?
9. Do you know realistically how much income you will receive in retirement?
10. Are you a higher rate taxpayer?
11. What is the financial strength of your pension providers?
12. Have you started inheritance planning?

Back to top

Q1. What is retirement today?

At Pall Mall we believe that the expectation of retirement today is radically different from the past.

Today’s retiring generation are choosing retirement on their terms. They are healthier, more energetic and eager to enjoy a more fulfilling retirement than any generation that has gone before.

They demand a much greater level of choice and flexibility from their pensions and pension providers. They certainly do not want to be locked into a product for life.

In today’s retiring generation some can expect to live longer in retirement than they ever did working. In human history, this is a first!

Today’s retiring generation see life as an adventure, to be enjoyed in every way! They see retirement as an opportunity of a lifetime to fulfil some of their life’s ambitions.

So we all agree that retirement today is radically different from retirement in the past.

This in turn has lead to significant changes in the way people choose to retire. So when consumers choose to do things differently, pension providers have to change too!

Today’s retiring market in terms of sheer financial size has never been bigger and is set to grow by over 200% by 2012/13.

Therefore the number of retirement providers and products available has increased massively and will continue to grow for some time yet.

With this in mind you can imagine the choice facing clients today. Seeking appropriate advice and planning retirement objectives correctly has never been more important. It can literally boost pre-retirement funds and add thousands per annum to post retirement income! 

At the same time this expanding market drives ever-greater competition, which in turn widens the gap between the best and worst performers.

However, just as night follows day, more choice means more confusion for clients and more urgency in the requirement to seek ‘Independent Financial Advise’.

With Pall Mall’s ‘Free Initial Consultation Service’ you will be able to have your own situation assessed by our team of fully qualified professional financial advisers, with no strings attached. You then decide if you want Pall Mall to be your ‘Consultative Retirement Partner’.

Let us give you some assistance…. today!

Back to top

Q2. Are you aware of the potential increase in ‘Retirement Income’ from your pensions by ‘Shopping Around’ at retirement?

Every private pension in the UK has a design characteristic called the ‘Open Market Option’ (OMO). This option means you are not obliged to take your retirement income from your existing pension provider.

In other words you may use one pension provider to save during your working lifetime and another pension provider to convert those savings into retirement income.

Remember this is your money and you generally only get one chance to make the correct choices at retirement…. this is where assistance is absolutely vital. 

At present under 5% of all retirees pro-actively use the ‘OMO’ without independent consultative assistance. Therefore 95% of this market requires help to make the most effective choices for their hard earned pension fund.

Independent Financial Advisers (IFA’s) are the only group in a unique position to assess the merits of all providers before, during and after retirement.

IFA’s assist approximately a further 35% of retirees to gain the most from their retirement funds.

This leaves a shocking 60% of the retirement market simply not considering the open market option at retirement and accepting whatever their existing provider offers as a retirement solution.

The Government, Regulators and IFA’s are all jointly concerned by these figures. In its pre Budget report (PBR) in 2007, the Treasury made clear its intention to take the situation with ‘OMO’ seriously and demanded action from the various organisations, including the ‘Financial Services Authority’ (FSA) the financial services industry’s regulator, the ‘Department for Works and Pensions’ (DWP) and the ‘Association of British Insurers’ (ABI).

All these associations are working to increase awareness and accountability in this market. The FSA has added a great deal of additional information to its consumer websites such as its annuity comparative tables to assist consumers further.

It also intends to force companies to make disclosure of the ‘OMO’ more prominent in the retirement packs it sends to consumers. Also discussed in this article in the Daily Telegraph.

However we at Pall Mall Financial believe an important point is being missed.

With less than 5% of all retirees pro-actively using the ‘OMO’ without assistance and 35% benefiting from IFA advice, we believe the only way to get this percentage higher and towards an ideal 100%, is to have the ‘OMO’ as a default option at retirement.  This would allow retirees to be directed towards advice channels to enable them to make an informed decision at retirement. 

If pension providers knew that 100% of their pension clients would use the ‘OMO’, the competition generated would naturally increase pension incomes for everybody. At present the reverse is true, with providers offering substandard rates because they know 60% of the market will simply remain with them and not consider alternatives. 

Are you one of the 60% ?…..   

Let us give you some assistance…. today!

Back to top

Q3. Are you in good health?

One of the greatest concerns for Government, regulators and IFA’s regarding the ‘OMO’ at retirement, is the issue of consumers not selecting the correct pension on reflection of ill health.

‘Enhanced’ or ‘Impaired Life Annuities’ allow clients to gain a considerably higher level of retirement income from their pension pot than an ordinary annuity. These plans are designed specifically for people with health issues and can boost a retiree’s income by as much as 40% compared to a conventional annuity.

Presently only 10% of the retirement market select this type of annuity, however the estimated market for this product is put at up to 40% of all retirees. Therefore a massive proportion of the retiring market is unwittingly selecting incorrect low paying annuities.

Clients in poor health are therefore receiving a lower income than they deserve and over a shorter period than a healthy individual. If for no other reason than this the ‘OMO’ should be made a default option, so that all retirees can be assessed to see if an ‘Enhanced’ annuity can be selected for them.

These clients sometimes are not in a position to help themselves, making assistance all the more pressing.       

As an example, a smoker can gain access to a much higher level of income than a non-smoker via enhanced annuities. If a smoker can gain enhanced income from his pension then clearly a great many other retirees will be able to do so as well.

Let us state again, the existing pension provider has little motivation to offer competitive rates of ‘Enhanced’ or ‘Impaired Life Annuities’ knowing that 60% of clients will simply stay with them and take what’s offered.

Remember when a pension is converted into an annuity and the individual dies shortly thereafter 100% of the allocated funds within the annuity are retained by the pension provider, not the deceased family.

In the case of a married couple the income will drop usually by 50% to the remaining spouse on reflection of the annuity selected.   

We have seen first hand clients in ill health with ordinary ‘good health’ annuities when clearly an enhanced annuity would and should have been selected.

Are you able to boost your potential income via enhanced annuities?….

Let us give you some assistance…. today!

Back to top

Q4. Are you confused by the choices you will need to consider and make before, during and after retirement?

The UK retirement market offers more choice now than at any time before, not just in terms of the retirement products available to retirees, but more importantly because the number of companies offering retirement solutions is growing rapidly, creating ever-greater competition.

This market is set to expand by over 100% over the next four years as a greater proportion of the UK population take their retirement and ever greater funds flow from pre retirement funds to post retirement income.

A generation ago the choice for retirees was limited, simple and usually ended with the selection of an annuity tailored around their married situation. Today retirees are demanding that their pensions are designed around their specific ongoing requirements, before, during and after retirement.

With so much choice available today for retirees, it can get a little confusing to say the least. In fact we believe the small percentage of retirees (presently less than 5%) who select their own retirement solutions via the ‘OMO’ will reduce as the market grows in size and complexity.

As IFAs specialising in this market, we have seen how this growth and wider choice has increased retirees’ motivation to seek assistance and advise from the IFA sector. It is our sincere belief, that because the percentage of clients who pro-actively make these retirement choices for themselves is so small, the remaining 95% of the UK pensions market would benefit greatly in having their retirement situation reviewed by independent retirement specialists.

This is why at Pall Mall Financial, we are so confident that we can add significant value to clients retirement planning, we have decided to donate our initial consultative time away for ‘free’ to all clients wanting to find out more about their specific retirement situation and possible solutions.

Let us give you some assistance…. today!

Back to top

Q5. Have the ‘Management Charges’ imposed on your pensions reduced as your pensions have increased in value?

When was the last time you considered the charges on your pension portfolio?

The pensions industry has experienced many changes down the years, however two dates stand out – 2001 & 2006.

In 2001 a new type of pension was introduced called Stakeholder pensions.

This pension has successfully simplified the design of private pension planning in the UK. At the same time it has successfully lowered the charges associated with acquiring a pension enabling more people to acquire one.  

With a single charging structure called an ‘Annual Management Charge’ (AMC) these plans are transparent, easy to understand and more importantly could be compared quickly to other pensions to judge if clients were paying too much for their AMC.

In April 2006 we saw ‘A-Day’, which simplified the rules surrounding the UK pensions industry. These changes gave clients much greater flexibility in funding levels and allowed the funding of pensions in almost any circumstance.   

These two events have driven charges down and innovation up!

However there’s a catch!

In most cases, in order to take advantage of these new rules, an individual will need to act to review existing pensions. This will bring their portfolio in line with these new lower charged, simplified arrangements. Unfortunately we have found that in real life most people do not review their pension arrangements unassisted, (less than 3%).

They remain paying higher levels of management charges as their funds grow, when in fact the opposite should be happening because higher values in pension funds should logically drive down the charges (AMC) associated with their management.

Unless this is done…clients will usually always lose! When was the last time the charges on your pensions were considered?….

Let us give you some assistance…. today!

Back to top

Q6. Are you aware that conciliating pensions can simplify your life, reduce management charges and bring you closer to your retirement planning? 

How many pensions do you have…. 3, 5, 7? 

How many do you need?

It’s the first question we pose to new clients. We usually find an average client will have in excess of five pensions. These pensions are like small islands just out of earshot of one another, with no way of communicating, each one simply living off its own resources.

In addition a client will have the following:

• Five different pension providers
• Five different sets of Management charges
• Five different fund selections
• Five sets of paperwork
• Five separate pools of accumulated pension funds
• Five policy numbers (With SERPS included this could rise to eight)
• Five points of contact

We could go on, however the point is made.

In today’s modern pensions market it is not necessary or desirable to have more than one or two pensions for the vast majority of accumulated pension funds.       
 
By conciliating pension funds the client achieves a simplification of the pension process. This is a key requirement of all clients, to give them a clearer vision and clearer understanding of what they have and what it’s doing. A clearer understanding of any subject will always boost confidence and effectiveness of the objectives and proportionally increase the chances of success. Pensions are no different.

At the same time with pension funds pooled, a greater economy of scale will be created for clients and we are able to reduce the AMC before retirement, which in turn will boost the pensions value and increase post pension income.

Let us at Pall Mall assess if your pension portfolio is working in the most cost effective way. It could save thousands per annum now and add thousands per annum in retirement.

Let us give you some assistance…. today!

Back to top

Q7. ‘When was the last time your personal ‘Risk Profile’ was reviewed’?

A ‘Risk Profile’ is a term used to describe somebody’s attitude to investment risk. This attitude to risk is forever changing, as clients get older, pension funds grow or underlying investment trends change.

However we find a great many clients still rarely or never consider their risk profile on reflection of the holdings in their own pension funds pro-actively.

In today’s quick changing world, one’s investment risk profile should be considered continually in order that the holdings or funds within a clients pension accurately reflect their attitude to risk.

If the value of investment holdings within pensions goes up or down, it is vital that clients understand why this is happening. It can never come as a surprise.

With this understanding it becomes easier to enact the changes, which will always be required when investing.

Now of course, this takes a joint effort between client and adviser, one cannot enact change without the other.

In the case of pension funds this process is vital as funds grow and clients draw closer to retirement. It is absolutely vital that the last ten years before retirement are managed pro-actively to ensure a client’s funds are reflecting accurately their attitude to investment risk.

In the period just before retirement, individuals may not have enough years left to make good the investment losses they have sustained because portfolios did not accurately reflect their risk profile.

For the vast majority of people their funds simply go up and down with the underlying fluctuations in the stock market. With this attitude the individual is simply hoping for a good upswing in the funds value immediately prior to retirement. If not then the situation can be a dire one.

Do your pension investments accurately reflect your attitude to risk?

Let us give you some assistance…. today!

Back to top

Q8. Are you aware of the ‘Asset Allocation’, ‘Fund Selection’ or ‘Performance’ within your pensions?

In our own research we have found that the vast majority of pension holders rarely consider the three issues above and hardly ever pro-actively change their pension on reflection of underlying investment trends.

We all have different roles to play in life and we fully understand that a teacher or an engineer will have expert knowledge in their own fields but not necessarily in finance.

However it is absolutely vital that Asset Allocation and Fund Selection are considered on an ongoing basis.

Picking the best performing funds for a pension is the ambition of all clients. However you would be wrong to assume this drives the principle growth within a pension. Asset allocation has long been recognised as the most powerful driver of investment growth…why?

Well the answer is simple; markets go up and down driven by a multitude of factors. However the largest factor in this movement is pure human emotion. Investors sometimes feel confident (‘Bull Market’) or fearful (‘Bear Market’). These emotions can drive markets to unrealistic highs and vice versa.

Pro-active asset allocation coupled with an appropriate spread of investment funds from cash to equities can take advantage of these swings. In fact it is the principle of asset allocation that drives the majority of profits for the true titans of the investment world.

Simple put, if you hold ‘cash’ in a bear market and equities in a ‘bull’ you will out perform nearly all investment funds.

Fund selection and the tracking of performance within the pension are considered after an appropriate asset allocation has been established for clients. This is not to say that fund selection is unimportant, far from it, it plays an important ‘micro’ role complementing the ‘macro’ role of asset allocation.   

For clients approaching retirement it is of the utmost importance to understand these trends. Inevitably their pension funds will have built into sizeable assets, which will need protecting. There may not be a sufficient number of years left to recover equity losses if a portfolio had incorrect exposure going into a bear market, so care needs to be taken.

However as with all things, you need to take action and consider market trends continually to take advantage of the above. We understand that for the majority of pension holders this is an impossible task…. however not impossible if you align yourself to appropriate financial advice. The need for instruction, education and motivation at this stage of pension planning is vital.

Let us give you some assistance…. today!

Back to top

Q9. ‘Do you know realistically how much income you will receive in retirement’? 

It may seem an obvious question. However in retirement studies the majority of respondents were not aware of the amount of income their pension assets would be able to purchase at retirement.

This is an amazing revelation. People are funding their pensions with no idea how much income it will produce. How can they know that the contributions they are making are appropriate for their retirement objectives?

Without a goal in life, the planning of most things becomes futile. This is why the majority of retirees are shocked to find how little income their pensions produce at retirement.

We all have imagination and this without instruction can lead us to believe we have a certain unrealistic level of income coming from our pensions. In the vast majority of cases the reality hits home when it’s too late and there may not be enough years left to make a difference.  

If clients were aware of the funding realities on reflection of their retirement goals continually, retirement would not come as such a shock. In turn this would have lead to a much greater level of engagement to meet retirement objectives on an ongoing basis.

Affordability of course will always play a key role in dictating how much an individual pays into pensions. As financial advisers we fully understand this. However having a clear understanding of how much contribution is required and over what period of time is imperative.

Do you know how much your pension will pay at retirement?

Let us give you some assistance…. today!

Back to top

Q10. Are you a higher rate taxpayer?

Why would this be important? Well the most tax effective savings vehicle which the government allows in the UK is open to an exclusive club…. that of the higher rate taxpayer.

Present rules allows a higher rate tax payer to off-set their entire 40% tax liability via pension contributions up to certain annual and lifetime limits. Therefore pension planning if only for tax mitigation becomes a logical choice for the 40% taxpayer.  

The decision for basic rate taxpayers to fund for retirement via pensions is not as clear-cut! With the removal of the 10% tax band in 2008, retirees will begin to pay basic rate tax earlier than before. The state second pension also further complicates issues.

‘Individual Savings Accounts’ (ISA’s) formally known as ‘Personal Equity Plans’ (PEP’s) allow an individual to save in a tax-free environment in the same way as personal pensions up to an annual limit presently of £7,200 for the 2008/09-tax year.

At retirement these ISA funds can create a tax-free income. The personal pension by comparison allows just 25% of the funds value to be taken tax-free with the remaining funds taxed in the normal way. 

On death, ISA funds can be cascaded down the generations to children etc, whereas the personal pension funds (if an annuity has been selected) are gone, kept by the annuity-paying provider.

If individuals know that they will become higher rate taxpayers, logic dictates that they should delay making pension contributions until that date, when they will be able to claim 40% relief for every pound invested instead of just 20% as a basic rate taxpayer.

Are you a higher rate taxpayer?

Let us give you some assistance…. today!

Back to top

Q11. What is the financial strength of your pension providers?

We all want our pension providers to be financially strong; we trust government and regulators to ensure this is the case.

However is this something that you consider in pension planning? Well of course it is, companies are up one day and down the next. Maintaining a continually high level of service, performance and governance can be difficult for the best-run financial services organisations.

Now consider this, you may start pension funding in your 20’s, 30’s, 40’s etc, you fund these pensions until retirement and then take the income option given to you by the same company. In total you could be with the same provider for the entirety of your pension funding and income receiving life. With new pension rules since 2001 it is actually possible to have a pension arrangement with a provider for your entire life.

Now if we were to consider the financial strength alone of most providers, the top ten now would not be the same as ten, twenty or thirty years ago, companies change and so must you.

The highest charges in pensions are usually always imposed on long standing clients who do not look for alternatives….why?

Well again it’s very simple; there’s no highly tuned competitive market for pensions clients who remain with their providers. Alternatively if you are explorative and demand a better deal by switching pension providers when it is appropriate to do so, the market you will find is extremely competitive and rewarding. This in turn, as you would expect, drives costs down, boosting pre retirement funds and post retirement income.

Like every aspect of life, competition always drives quality up and prices down; it’s a basic rule of supply and demand. Pension planning is no different, the more we demand from our providers the more we will receive.

When was the last time you demanded a better deal?

Let us give you some assistance…. today!

Back to top

Q12. Have you started inheritance planning?

The tax collecting efficiency of the Inland Revenue is hard to beat. It obliges all employers in the UK to be unpaid tax collectors on behalf of Government.

Tax is everywhere and inevitable, hence the saying ‘Death & Taxes’.

We all agree to a varying degree the need and benefit of taxes, however some taxes are fair, others not so.

In our view one of the unfair taxes is:

Inheritance Tax (IHT)

The majority of people this tax affects will consider the issue only at retirement. You don’t have to be rich to pay IHT, far from it. Any estate valued in excess of £312,000, which will rise in stages to £350,000 in 2010/11 or more on death will pay IHT.

Let us illustrate how:

*Based on 2008/09 tax rules

Everything in an estate is included for the calculation of IHT:

• House
• Car
• Personal effects
• Collections
• Investments (including private pensions, if not vested) and life assurances (not written in trust) etc.

This list, believe us, is endless. 

The tax rate paid is 40% for everyone, the equivalent of the highest rate of income tax. The tax is paid by the inheritors and deducted from the deceased estate; therefore it affects those who gain from an inheritance and the people planning to leave one.

Now consider this, you work your entire life diligently investing your ‘taxed income’ into your estate, only for the tax man to come along and take even more tax when you die. If one really considers the fairness of this tax you would come to the same conclusions as we do.

Now as with all financial planning questions there are solutions. On our home page we list the ‘Eleven ways to escape Inheritance Tax‘ which is a must read! However as with all complex financial considerations the vast majority of clients require a consultative mechanism to effect the planning required.

To leave IHT planning after retirement would be a grave mistake. In our studies and experience, these issues must be dealt with as early as possible. If left, the ability of clients to agree and put into place preventative measures against this inevitable tax diminishes greatly with age.

This is why at Pall Mall we make it part of a ‘Holistic Approach’ to financial planning. Where the first step is just one of many taken to ensure clients receive the most effective financial guidance available.

Do you choose to take the first step?

Let us give you some assistance…. today!

Back to top

© 2007 Pall Mall Financial Independence Ltd