In all honesty, looking at the pensions arena from the point of view of an outsider, it is a topic that seems complex and confusing. Even from the inside, it can be somewhat difficult to keep up with present and future legislation. Add to this a new government, formed from a coalition of separate ideas, different from those of the previous government, and it is little wonder that clients are becoming even more confused by speculation on pension legislation.
I will not enter this political minefield in any great detail, as it warrants an article in itself, but it is fair to say that there could be some large implications for all of us if the coalition parties clash. However, despite some seeds of conflict, there seems to be a decent degree of agreement in manifesto pension policy pledges between the parties. The first port of call for the new government has to be to find a way to cement the belief that people must have in saving for retirement. This can only happen if people who make provision for their retirement years will not be penalised or have their hard efforts rendered meaningless through means-testing.
Confusion over means-testing continues to be rife within the market, so that more and more clients need support on how to understand and manage their pensions. Mortgage brokers can play a key role in this era because all political flux provides the perfect opportunity to communicate with clients and ensure they are prepared for any changes around the corner.
The annual review
Generally, clients love the idea of receiving annual advice, which allows them to sit back, happy in the knowledge that they have a specialist in place who is guiding them towards retirement. Also, increasing numbers of clients simply want their various plans in one place, so they can manage their investments, get an overview and keep an eye on performance. With the FSA focusing strongly on the pension-switching arena and use of a reputable adviser – preferably one that is an IFA rather than multi-tied – it is key for brokers to refer clients to a quality partner. As the regulator becomes more vigilant, working with trusted partners should be top of a broker’s list across all aspects of the market. Firms should certainly do their homework and undertake sufficient due diligence on potential partners in order to really maximise any incremental revenue streams.
On the other side of the coin, 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.
A good pensions adviser will certainly not switch providers for the sake of it as it sometimes remains in the best interests of the clients to stay with their chosen provider. However, there are millions of UK savers currently wasting billions and putting their retirement pot at risk by leaving their cash in woefully underperforming pension funds. It is unfortunate that people do not often realise this, and even if they do, they are unsure of how these schemes can work best for them. Indeed, annuity rates have fallen by nearly two-thirds in the past 15 years, and many people continue to happily pay into a pension without being aware that the initial projections on their retirement income are woefully inaccurate. Over a half of our clients who were referred to us by our mortgage broker partners had funds that were not in line with their attitudes to risk.
All of these people were unaware of this before their contact with us. Imagine how positively this reflects on the broker who has initiated the referral at a time when client retention has to be top of the agenda for all mortgage brokers.
Finding the right partner
Unfortunately, there are plenty of brokers failing to embrace the opportunities out there. While the need for diversification has been recognised, brokers are still not fully maximising referral opportunities for other financial services offerings. Setting up an introducer arrangement with a pensions specialist and offering clients a free pensions review lifts retention levels, adds real value through a more holistic advice process and also offers up a lucrative extra revenue stream. Referrals can also help establish good PR and marketing opportunities, and garner valuable word of mouth from clients who have enjoyed this free pension advice.
By setting up something as simple as an annual review to help clients focus on their retirement aims, this generally leads to them increasing their contributions, ultimately leading to a better retirement.
The time has come to use political uncertainty to revisit clients and offer this competitive extra, setting yourself ahead of rivals. The pensions market remains a lucrative one, and having a robust referral relationship in place with a trusted pension specialist will ensure that clients get access to the right advice in an area that may previously have been considered out of reach.
More people are thinking about their long-term plans. Brokers need to ask themselves if they are making the most of this opportunity. And if not, why not? The demand is certainly out there.
Mark Clinton, is director of MD Pension Solutions
