Pension changes present new challenges for Advisers
Pensions in the UK have been through a radical overhaul over the past 10 years, the pace and the amount of regulatory change has been immense. Until recently, in my eyes, flexi-drawdown had the crown as the most significant change since drawdown began, however, little did I know that flexi-access drawdown was about to take the top spot.

This is great news for the industry and for millions of pension savers, I hope it encourages the next generation to invest in a pension; the ability to get your money back before you die will be a great incentive! This is exactly what the four dice stacked up on piles of coins pension’s industry (and economy!) needed to move forward, there’s no doubt that Mr Osbourne was more interested generating revenue for the treasury than actually giving pension freedom to savers but all the same this is a great move that will surely be embraced by all.

The challenge for advisers now is deciding what exactly constitutes good advice? What do you say to Mr and Mrs Smith who rock up at your office with plans to withdraw their whole fund to go on the cruise of a lifetime? Do you recommend that their financial situation is more in tune with a Saga trip to Skegness or do you let them blow their fund on the cruise?

We have put together a really simple income calculator that works out how long a fund will last based on the level of income taken, average returns and inflation. The old system of GAD limits and restrictions offered a degree of consistency and control, however, the new system of complete flexibility poses the biggest challenge of all. In todays climate of low growth and arguably high “silver” inflation the average fund will run out fairly quickly if the client withdraws income above the old max GAD.

For example a 65 year old male with a net fund of £50,000 could take a maximum of 150% GAD or £3,975.00 (gilt yield 2%), assuming a rate of return of 5%pa with 3% average inflation the fund would last for 14 years. Simply rounding that income up to £5,000 per annum would reduce that to 11 years. At £6kpa that would come down to 9 years and £7kpa would reduce that to 7 years. To summarise, taking an extra £3,025 per annum (£252pm) the fund would run out in half the time! Try it for yourself:
income calculator

One thing that I hope the new rules will encourage is real innovation in the pensions market, providers need to embrace this opportunity and invest in the technology needed to make pensions a “must have” for the young and care free. The next few years will likely see a boom in pension sales but if we want this trend is to continue beyond the baby boomers then it’s vital that providers engage the next generation through innovation and technology.

Santchi are a web development company based on the Wirral in the North West of England. We develop websites and web tools for the financial services industry. We specialise in websites for financial advisers and financial services professionals.
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