With the Government and employers edging away from their pension scheme responsibilities, it is now up to the individual to plan for their family's future. Edward Murray reports.
Given the amount of change that has taken place in the personal finance markets over the last five years, some financial advisers could be forgiven for hoping for a more static landscape in the future.
While it takes a lot of effort to keep up with changes, it is often those changes that create opportunities for people to prosper.
Certainly, this is the case with the pension market and although its public perception has taken quite a beating over the last decade or so, there is a growing interest in the market due to necessity and huge potential for those looking to offer retirement planning to their clients.
The Government has clearly set out its stall when it comes to future state provision for the elderly and will only offer a basic level of income for which people will have to work longer than they have ever done before.
In the commercial sector, companies are pulling back from the non-contributory and final salary schemes they have offered in the past and those in such arrangements will be trying to hold on to them for dear life. Pension provision is now everyone's business and the time when it would be taken care of automatically is long gone.
Tom McPhail, head of pension research at Hargreaves Lansdown, believes this is the case and says: "It is a reflection of where we are at in terms of the retirement provision and the roll-back of state provisions and the Government has made itself clear on that front."
Distilling his opinion he simply adds: "Whether you like it or not, pensions are now your problem."
However, it is not simply the fact that there is a growing need and interest from consumers for pensions, but also that there have been some recent wholesale changes to the options available to clients that make the market an exciting place to be at the moment.
It would be impossible to cover all of these in a single article, but a look at some of the changes that have taken place with self invested pension plans (SIPP), annuities and the IT that is used to support the market offers some sort of insight into the opportunities that are available to both clients and advisers.
The growth of SIPPs seems to have taken most people by surprise, especially after the Government's U-turn on disallowing residential property to be used as an investment class.
Alec Ruthven, director at AM Ruthven & Associates, says: "I thought this would dampen down the sales of SIPPs quite heavily, but there are still a lot of people who want more control and I think the fact that SIPPs became more widely talked about made people aware of the fact they were out there and helped make them more popular."
The A-Day rules introduced last year may have been controversial in certain areas, such as residential property, but there is no doubt they have had a huge impact on the SIPPs market.
Andrew Tully, marketing technical manager at Standard Life, explains: "The legislative changes that came about in 2006 benefited SIPPs massively as it made it much simpler for people to pay in as much as they wanted when they wanted and especially for higher-net-worth individuals who SIPPs are targeted towards."
In addition, there are an increasing number of people looking to consolidate their retirement finances and exert a greater level of control over them than they have ever done in the past.
However, SIPPs still remain a product that is suited for those at the middle and higher-end of the pension market rather than for those with smaller funds.
No matter who SIPPs are and are not ideally suited to, they have helped generate a new level of interest in the pension market and offer advisers the ability to discuss all of the options available with their clients. They also mean that advisers with clients using a SIPP should be in regular contact with them, helping to manage their pension investments and keep them abreast of the latest developments and changes in the market.
SIPPs have also tied in perfectly with the shift that is taking place in the way advisers run their businesses and charge for their services.
Julie Mulvanny, head of business development, individual pensions at Prudential, comments: "SIPPs fit perfectly with this as it turns on its head the traditional transactional arrangement with clients. The benefit the adviser gives to the client is all the post-sales advice and the review of portfolios and other holdings the client may have." SIPPs, therefore, allow advisers to help manage an ongoing relationship, rather than simply relying on setting the product up in the first place.
While the opportunities that SIPPs offer are massive, there is also a huge amount of work that can be done in helping clients get the most out of their pension funds once they retire.
Multi-faceted solution
The annuities market is also changing dramatically and has moved a long way from simply offering a one-solution answer to those looking to purchase an income. Impaired annuities have been in the headlines a lot and can offer hugely beneficial terms to some investors, although many people who smoke or have high blood pressure, for example, still do not know that this would qualify them for the better rates offered by these products.
There has also been a shift towards clients having more control over the level of income achieved by an annuity and so variable-rate products are becoming popular in their many guises. All of this means that there is a greater need for advice when it comes to deciding which is the best option.
At the moment, too many people are simply taking the basic annuity offered by their provider and McPhail would like to see some significant changes.
He comments: "If I had my way then insurance companies would not even be able to offer their own annuity rates to existing customers on retirement. They would simply have to let the client know the size of their fund and then leave it up to them as to where and how it was spent."
Of course there are some clients who are happy to take full responsibility for their affairs and some advisers have worried that these technological advancements may cut them out of the loop.
However, the truth is that they should, in essence, act as a service-enhancement tool and allow advisers to sit down with clients and talk them through their options. Indeed, some lenders, such as Prudential, have chosen to only allow this sort of functionality to intermediaries, ensuring that clients go through the advice process, while others feel excluding people in this way is not the right approach.
Whichever approach is best, there can be no doubt that people are being forced to take a growing interest in their pension plans, that their options are growing significantly and the access they have had to manage their products has never been better.
In turn, this means advisers have an opportunity to develop long-term and mutually-beneficial relationships with clients in this area. Many are taking full advantage of this and only those who have decided not to know why. n
Edward Murray is a freelance journalist
