Ahmed Bawa, CEO of Rosemount Financial Solutions (IFA) tells us why he believes that if we’re to start to close the advice gap and encourage more people to plan properly for their retirement, then we need to remove some of the confusion around pensions.
One of the hurdles faced by the pensions industry is the lack of clarity around exactly what happens to savers’ contributions. All too often savers feel like they are in the dark about how their money is being used, and where it is being invested.
But this is really important, because where the money is going can have a direct impact not only on a saver’s engagement with their pension, but also the sums they are willing to set aside.
This was made clear by recent research from Legal & General, which found that significant numbers of savers would contribute more into their pension if they knew the money was going into sustainable assets.
For example, more than two-thirds (68%) of defined contribution savers said they would be more engaged with the pension – and potentially pay more in – if they knew it was being invested in affordable housing or other schemes that help address the housing shortage.
Similar numbers (63%) said they would connect more with their saving if the money was going into helping the transition to clean energy, while more than half would consider saving more if the money was being pumped into innovative technology firms.
This should serve as a wake-up call to pension providers, but also advisers active in the pension industry. If we can do a better job demonstrating where pension contributions are being invested, then we can boost engagement and ensure our clients are better off in the long run.
The need for clarity
It’s no secret that many people are not saving enough for their retirement. Even those who do have a pension plan in place may not be putting aside sufficient sums to match their hopes and ambitions for retirement.
This challenge has only been made more acute off the back of increases to the cost of living – data from the Pensions and Lifetime Savings Association earlier this year suggested that a single person needs an annual income of £31,000 a year for a moderate lifestyle in retirement, a jump of £8,000 a year from the last time the figures were compiled a couple of years ago.
If pension providers want to boost the level of saving, then evidently there need to be more options for those who want to back sustainably-focused assets.
But providers also need to be clearer about where that money is going. Advisers need to be able to show their clients that their pension contributions are being used for good.
A question of education
It’s a useful reminder of the educational role that advisers have to play with pensions. We know that significant numbers of clients are unfamiliar with many elements of pension saving, and not just where the money is being invested. Studies earlier this year highlighted a lack of knowledge around elements like what age the money can be accessed, or how much they can withdraw tax free.
At every stage, advisers need to not only highlight the importance of pension saving, but address the misconceptions clients often have about pensions. It’s only by clearing up that confusion that we can encourage savers to put aside adequate amounts to deliver the lifestyle in retirement that they are hoping for.
Constant communication is absolutely essential. Every time an adviser speaks with a client, they have the opportunity to demystify pensions. It might be clarifying how the saver can influence where the money is being invested, when they can access the money, or even what sort of sums the client is on track to receive, but the clearer pensions become, the more likely the saver is to actively engage with them.
This isn’t education for its own sake, but rather helping the client make more informed decisions which will help them in the future.
The support you need
Clarity around pensions will make a huge difference to saver engagement. But it won’t happen by accident – as an industry we need to go further in delivering that transparency, as well as the tools and support needed to spread the word.
Networks, for example, need to provide bespoke training for their advisers, to make sure they are as sharp as possible in promoting the benefits of pension saving. They need to go the extra mile in delivering the support materials needed too, so that advisers have the widest possible toolkit on which to draw.
Providers can also help by being more transparent about the products themselves, from the charges involved to where the money is invested.
The more clearly we can communicate about pensions, and the positive impact the money being saved is making to the world, then the easier it will be to encourage savers to engage more with their retirement planning.
