Osborne stops pension providers giving advice -Simon Read

Chancellor says levy will finance free service for retirees

Pension firms will not be allowed to advise people on their retirement options from next April, but they will effectively be forced to pay for independent advice for retirees.

The Chancellor, George Osborne, yesterday filled in much of the detail around the new pension freedoms he announced in his March Budget, which was largely welcomed by consumer groups but left much of the pensions industry still warning of potential problems.
Crucially, Mr Osborne said the guaranteed guidance on pension choices offered as part of the new rules must be provided by independent organisations rather than pension schemes or providers.
The advice will be free to the consumer but will be paid for by a levy on regulated financial services firms. 
The Chancellor pointed out that Treasury research showed that “consumers would not trust guidance given by a person or organisation with a vested interest in selling a financial product or service”.
He said: “We’re making sure that people have the right support to make their own choice about how best to finance their retirement. Everyone with defined contribution pension savings reaching pension age will get free and impartial guidance.”
The changes follow years of concerns that annuities may have been mis-sold as pension providers were allowed to effectively put people into their own products, irrespective of whether they were the best or most cost-effective option.
Mr Osborne’s statement draws a line under that practice and he said that some 18 million people would be able to benefit from the changes, which come into force in April next year.
In the future pensions guidance will be offered through a range of channels, including web-based, phone-based as well as face-to-face, from organisations such as the Pensions Advisory Service and Money Advice Service.
Pensions expert Ros Altmann said: “The guidance opens the door for new and better products, as well as improving financial literacy nationwide. It could be the start of a whole new industry, which will ensure people have a better idea of how to plan their finances and how to assess their retirement options.”
Richard Lloyd at Which? said: “It’s essential that people facing retirement get personalised, impartial support to navigate some of the most radical changes to the pensions market in decades, so it is absolutely right to separate this from sales processes. This decision will help avoid potential conflicts of interest when guidance is given.”
But Neil Lovatt of Scottish Friendly said of the free guidance plans: “This feels a bit like window dressing on the part of the Government. It’s a solution that cannot possibly cope with the level of demand that should be placed upon it – which leads me to believe that it won’t be implemented properly.”
Meanwhile Nigel Barlow at the special insurer Partnership warned that the levy could hit financial advisers. “The suggestion that financial advisers may need to fund up to 30 per cent of the guidance costs came as somewhat of a shock to the industry as a whole and further clarification is needed around this.”
The Treasury also confirmed yesterday that it will allow new pensioners in private sector defined-benefit schemes to transfer into defined-contribution pension schemes, but with two new safeguards: a requirement to take advice and new guidance for trustees of the existing schemes.

Culled from The Independent

The need for Voluntary Contribution.

Most retirees often discover that their pension Pot is not enough to carry them through, that bring us to the idea of voluntary contribution. Most retirees develop one problem or the other when they discovered that their pension pot is not enough to carry out coupled with the rising cost of living and the sudden realization that the money they saved will not be able to cater for their old age.

Old age is what people pray for  right from their upward age of 15 years and I wonder why people feel terrible uncomfortable on advancing old age. The result has been that bleak rather than happiness.

And according to Richard Evans in an article in the Telegraph Newspaper he noted that “ more than a million people have started a self-invested personal pension or Sipp since their introduction in 1989, although many run their Sipp with help from a financial adviser.
These plans offer a simple and tax-efficient means to save in a wide variety of investments, from shares and bonds to cash and even, for more sophisticated investors, assets such as commercial property.”

The pension Reform Act 2004 and the pension Reform Act 2014 was explicit on that and it states in section 9 subsection 5 , Any employee to which the act applies may in addition to the total contribution being made by him and his employer make voluntary contribution to his retirement savings account.

The need for voluntary contribution came as a result of the insufficiency of pension contribution and the inability of some private sectors to pay accrued pension rights. The need for accrued pension stems out of the desire of the Federal Government to cater for the period preceding 2004, where an employee have put numbers to the organization.

In voluntary contribution, the amount is irrelevant, it is better to start small, so that you don’t feel unsafe especially when your salary is meager, and couldn’t carry you through.

Odunze Reginald C

Programmed withdrawal, the best option for Africans by Odunze Reginald C

Insurance marketers are good in selling Annuity by the slogan, Pension for Life, what is pension for Life, you will continue to draw your money until you drop dead, and once you drop dead after the  guaranteed period of Ten , nothing goes to your beneficiary and if the contributors draws up to 9years, the remaining one year pension goes to the beneficiary though on a monthly basis.

The Americans and Europeans are good at keeping fortune for themselves, and so annuity is good for them as they are only interested only on themselves, even where there is a family i.e. the nuclear family system the annuitants may not extend his savings for his immediate family unlike in African where we have the extended family system. In Africa, there is communal effort and Africans are good at being their brother’s keeper.

Even in America and elsewhere people are avoiding annuity, they argued that the period where they are paid only a particular and same type for all your life time is no longer tenable as investment is a necessary part of the pension scheme . According to Moret “Monitoring investments is very important. “A pension is for life, it’s not a case of 'buy and forget’,” said Mr Moret, who has earned the nickname “Mr Sipp” for helping to shape the industry since its launch.” In annuity , your investment is with other investment as such you don’t have access to your pension investment as it belongs to the actuary company and not to the individual investors. But in Programmed withdrawal, all your investments are reflected on your statements, and so there are the likelihood of extending the period of monthly pension.

And according to Richard Evans in an article” How to get by on a £100,000 pension pot”  which appeared in the Telegraph ,If you buy an annuity, you can fairly comfortably exceed this figure. The best-buy annuity will currently give you an annual income of £5,760, according to the Annuity Bureau. Add this to the basic state pension of £5,730 a year and the total comes to £11,490. The problem is inflation. While the state pension will rise in line, this particular annuity will not – the income remains fixed for life. An index-linked annuity currently pays £3,395 a year, making a total income of £9,125, or £775 below what is needed.  Continuing Richard thought of an alternative and he states “ let's look at what the alternative could do. This other means of taking a regular income from your pension savings is called "income drawdown". Here, rather than handing over your capital to an insurer in return for an income, you keep hold of it, normally within a self-invested personal pension or Sipp, and take an income from the interest or dividends it produces.”

From this brief presentation, it should be noted that if  whites who are advocate of nuclear family can start thinking of alternative to annuity, talk less of Africans who are of the extended family advocates.

According Campbell Fleming he noted that  "we don't know how many people will turn their backs on annuities but the evidence from my home country, Australia, where annuity purchase is voluntary, suggests that only 5pc of pensioners actually buy one. It's a similar story in the US. Annuities were designed at a time of high inflation and high interest rates, conditions that no longer apply. Continuing Fleming stated that he has issues on what could replace it and ask   "So what could replace them?" but he went to say that

"the reforms present an opportunity for the fund management industry to innovate and create investment products that meet the needs of this new generation of retired people. Clearly, it's imperative that we help that ensure investors understand their options, as more freedom for investors means more responsibility for fund managers" 

An investment that leaves nothing to your family when you die is not the best investment, Even in Bible Isaac has to bless Esau and Jacob before his death. He did not just leave them, the Bible stated, He bless them.

Odunze Reginald C