The term ‘mortgage broker’ is almost redundant in the current market. The majority of brokers have had to evolve their offerings from concentrating solely on delivering
mortgage deals to encompassing a whole range of other financial services offerings.
The pension and investment markets are notable areas that the mortgage broker
has previously shied away from, and not without reason. These are complex
areas which need the right permissions and a great degree of expertise. However,
focusing on the pension arena, this, in particular, is a market where consumers are
crying out for help and good quality advice.
The state pension system is currently somewhere close to chaos and people are increasingly confused regarding changes being made to the system. In a recent keynote speech to the Conservative Party Conference in Manchester, shadow chancellor George Osborne outlined plans to raise the state retirement age. If elected, the Tories will look at raising the pension age for men to 66 from 2016 to cut debts and pay for linking pension rises to earnings. They have also not ruled out raising women’s state pension age to 66 but say doing so by 2016 is “out of the question”.
Bringing the move forward would result in many more people – especially those aged
between 49 and 50 – having to work a year longer before qualifying for a state pension. Due to the increasing budget deficit, benefits of all types will be under pressure whoever wins the next election. State pensions will fall into this category and this announcement from the Conservatives may be just the first step.
Such announcements have only caused further confusion about retirement ages for those people trying to make sensible plans for their retirement income. At the present time, people can retire at the age of 50, but from next year, the earliest age will be 55 when using their own retirement savings. The default retirement age – when an employer can force retirement – currently stands at 65, but this is also liable to change. People also have to annuitise any personal pension savings at the age of 75.
I have almost confused myself with all those differing ages, so just think how perplexed consumers are regarding this matter. In addition to this, let us take a look at how effective the state pension system currently is. Figures released by the Office for National Statistics show that inflation, as measured by the Retail Price Index, fell by 1.4% in the year to September. This means that millions of retirees will see their weekly state pension rise by only £2.40 a week from next April, less than 50% of last year’s hike.
As a result, the basic state pension will increase next April from £95.25 to £97.65
a week for a single pensioner and from £152.30 to £156.15 for couples. Is £97.65 a week adequate enough to guarantee people a decent standard of living? The answer is a pretty comprehensive no. There is little doubt that more help is needed and it is amazing to find that
there are thousands of people who are not only unaware of future pension difficulties
but who also have millions of pounds sitting in old, forgotten pension pots that
they are totally unaware of.
The potential within the pensions market is huge. This is especially apparent for pension transfers as millions of UK savers are currently wasting billions and putting their retirement pot at risk by leaving their cash in woefully underperforming pension funds. The unfortunate thing is that individuals do not often realise this and even if they do, they are unsure of how these schemes can work best for them. All this talk of future pension changes and under-used existing pensions makes it more important than ever for clients to retain the services of an authorised firm to help them through the confusion.
It is vital that consumers get the necessary advice to ensure they have a happy and prosperous retirement, and in order to do so, their first step should be to review their existing pensions. Fortunately, brokers remain in a prime position to instruct a trusted pension adviser to guide their clients to the standard of living they deserve in this period of
their life.
We are all aware of the current difficulties facing brokers, and while the need for diversification is being embraced, brokers are still not fully maximising referral opportunities for other financial services offerings. As with anything, choosing the right strategic partner in this area is vital, which means that brokers really need to do their homework.
A pension referral partner should understand the intermediary market and guarantee that it will not cross-sell to the broker’s valuable client base ensuring that the only advice received by their client is the requested specialist pension advice. By offering clients a free pensions review, brokers can really add value to their offering by providing their clients with
a far more holistic advice process whilst also opening up a lucrative extra revenue
stream.
Mark Clinton is director at MD Pension Solutions
