The manager warns that investors are ignoring their pensions and prioritising their ISA and property investments, particularly following major changes to personal finance outlined in last month’s budget. “ISAs going up to the £15,000 limit is a really fantastic thing, but pensions are still a big issue,” he said.
“People need to be saving like there’s no tomorrow. I think a lot of people will get to 65 years old and have nowhere near the kind of money they need. You’re going to see more and more people working into their 70s and beyond.”
“I understand why ISAs are seen as a preference to some because they’re something you can touch and feel. You now don’t have to buy an annuity which is a real bonus, but you should be doing both.”
“There’s a lot of money out there, and a lot of it is going into property, but not enough is going into pensions. It’s not just the young people either, I think there’s a lot of older people - in their 40s and 50s - with their heads in the sand.”
“There needs to be more reform, but it’s the lack of saving that is the real problem. Investors need to wake up and smell the coffee.”
Pensions have been thrust into the spotlight in the past month following a major shake up to the annuity industry announced in the recent Budget.
The new rules mean over 55s will have greater access to their pension pots, removing the necessity to purchase an annuity for many people.
“The government has done some good by saying pensioners don’t have to buy an annuity – it’s unfair to force someone into something that is yielding next to nothing,” said McClure.
In a recent poll of readers of FE Trustnet, 41 per cent said they expected to retire before the age of 60. A further 44 say they thought would be able to retire between the ages of 60-70.
However, the manager believes that pension expectations in many instances are unrealistic. He says that companies that match your contribution or even double it makes pensions even more of a no brainer, but investors are not taking advantage.
“There’s no point in overextending yourself in the money market [cash] at the moment given where yields [interests rates] are, but rather than putting your cash to work in a pension people are doing the opposite. It’s a real problem.”
Dennis Hall of Yellowtail Financial Planning agrees that investors have been underproviding for their pensions, partly due to a focus on other investments.
“People are not saving enough at the moment - that is certain. We have seen even very well-funded pensions are now struggling and are now underfunded, and that is with high contribution rates of 12-15 per cent.”
“Previous generations would have served very well by pensions and didn’t have to think about it. Now people are having to make choices but there has been a lot of bad news around pensions and so people are thinking they will do something themselves.”
“They have been watching how well property has done over the past year and thinking it is a sure way to make money.”
He says people think ISAs and property are attractive but are confusing the pension tax-wrapper with annuities.
“People actually have not been compelled to buy an annuity – which a post pension consideration - for some time, but also the alternatives were not there.”
With the close of the ISA season and the beginning of the new tax year brings the perfect opportunity to asses all investments. FE Trustnet will be bringing you a series of articles on the subject of pensions in the coming weeks.