MGM Advantage is calling on the pensions and retirement profession to stop writing off small pension pots as unnecessary of attention.
With research showing a third of people don’t value financial advice at retirement1, MGM is calling for the collective industry to show that it is as concerned about getting the best outcomes for people with comparatively small amounts of savings as it is the wealthy.
According to ABI data, the average annuity last year was bought with a pension pot of £35,600, suggesting that the majority of people retiring in the UK would generally be categorised as having small pots.
Andrew Tully, Pensions Technical Director, MGM Advantage said: ‘If you have saved all your life, you want to be assured that the industry is going to work as hard as it can to get you the best possible retirement income, whatever the size of your pension pot. However, commentators – and I include myself in this – often give the impression that those people with smaller pension pots will only have one solution under the new flexible regime. That they should take all their money out as a lump sum without considering any other solutions. I think this does them and us, the industry, a disservice.
‘Although it may be right to take a lump sum, many of these people might have other assets and needs, and require a broader consideration of their finances. They might also have health issues that qualify them for better incomes through enhanced annuities, and so have potential to generate a reasonable level of sustainable lifetime income, an option many people are unaware of. These pots might seem small to those working in the industry but for the people that own them they are often significant and crucial to retirement plans.
‘As part of the financial guidance for all advocated at the Budget, we as an industry need to be acutely aware that more people, many of them with smaller amounts of saving, will look to advisers and providers for help. It would be a disaster for this new pensions environment if we were to alienate these people by not considering their needs as equal to those who have greater wealth.’
Industry data shows last year around 350,000 people converted their pension pots into an annuity. These were bought with an average (mean) pension fund of around £35,600, but with a median value of around £20,000, so half of people buy an annuity with less than this. 29% of annuities in 2013 were bought with a pension pot of less than £10,000.
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