The £billion Retirement Swindle

2011: The Great Magician - Tung-Shing Yee

As an Independent Financial Adviser, I act in the best interests of my clients. At the moment, and for as long as I have been advising clients, the term "Independent Financial Adviser" or IFA means that as your adviser I have to represent your best interests, selecting the most appropriate and suitable products from the entire market. In many respects, the financial service  product providers of all types (pensions, insurance, investment) has to convince advisers to use them. This, if you will, should keep the market competitive and honest. Sadly, this system has flaws as different products pay different levels of commission as do different providers. This is why when I set up Solomons in 1999 I set the firm up so that there was no bias between products or providers, as we would be paid the same irrespective of product or provider. This fee-based system has worked very well and saved clients thousands of pounds.

As a generalisation, the financial services industry tends to rely on fear, greed and inertia. One area where inertia and financial literacy become highly significant is that of actual retirement. This has received considerable media attention of late. In essence, when your pension reached the scheduled retirement date, historically pension companies provided a quote for the pension (which is actually an annuity). Many people opt for this thinking that there is little point making any further investigation. However, this is an area of financial planning that needs particular care. This is something that the NAPF (National Association of Pension Funds) is concerned about and in a new report estimate that collectively people buying annuities could be better off by £1bn each year.

For starters, using the "Open Market Option" means that you are able to buy your annuity from any annuity provider. Some are considerably better than others - providing significantly more money each month. It is often an epiphany like moment, when you see how much more your pension can provide with exactly the same pot of money. The FSA want pension companies to be clearer in the information that they provide that their information is just a quote and better deals might be found elsewhere (you can imagine that most pension companies would not be that keen to promote this concept).

Secondly, should you have any form of medical or health condition, you might qualify for an impaired life annuity or sometimes called enhanced annuity. This will also provide more money each month for the same fund. This is because as a group, actuaries believe that you will not live to the average age (because of the medical condition). This is of course often not what happens in reality. An enhanced annuity can provide 30% more income and it is estimated that something like 40% of people taking an annuity would qualify.

Finally, (well for the sake of brevity anyway) a proper discussion about whether now is the right time to take the annuity, or indeed if an annuity is appropriate at all. There are new options for those considering retiring and these should be explored fully. Getting your retirement decisions right is vital, as it is often a decision that you have to live with for the remainder of your life and invariably that of a spouses too. This is why it is vital to review and plan your retirement options and in my opinion to have a much flexibility as the rules permit.

Call me odd, but I get a real kick from helping clients to get more for their money. It is very satisfying to find the best possible solution that results in more money in your pocket. I would be delighted to help make sure you don't lose your share of £1bn each year. This is perhaps the only "magic" that I can perform as a financial planner.