We need to demand more from our retirement funds

Many people make money out of the retirement fund industry, but where is the advice that members so desperately need, asks Maya Fisher-French.

The annual retirement funds survey by Old Mutual showed that retirement fund members know very little about their retirement funds. About 43% of members believe that they will have enough to retire on, while fund trustees believe that figure is closer to 26% and the reality is that only 6% of people will retire comfortably. The majority of fund members do not know anything about where or how their funds are invested and fear they will not have enough to retire on.

The industry would like to blame the members, the ordinary people who go to work every day and focus on getting their jobs done, for not taking responsibility for their pensions. Surely, they ask, for something so important people should be more involved and not just leave it to fate?

But my question is different: What are all the advisers who are being paid fees actually doing for members?

You just need to read the paper “Whose money is it anyway” by Rob Rusconi to understand the incredible feeding chain that lives off our retirement funds. Yet this feeding chain only focuses on the investment choice by the trustees, not on member needs. In the move from defined benefits (when your company provides you with a retirement income) to defined contributions (DIY retirement) the industry has conveniently left members fully accountable for their own retirement without providing advice or education.

Both employers and their horde of consultants have washed their hands of members’ needs. For most members, the first and last time they will learn anything about their company fund is when they join it. Once year, or if lucky twice a year, one gets a benefit statement that is almost impossible to decipher. Yet from this we are expected to know whether or not our retirement provision is enough, how our fund has performed and whether we are invested in the correct asset classes for our needs. Even if members want to know more they often don’t know where to start

The survey shows that when members are provided with information, only 13% of them act on it. But is that really surprising? Very few people are financially savvy enough to act on the information, which is usually provided in a complicated format that they couldn’t bother trying to figure out.

What members need to demand from their employers, and employers in return need to demand from their service providers, is personalised service. At least once a year a member should have the opportunity to sit face to face with a trustee or another appointed official, who can clearly show the member how much their retirement fund is worth, where it is invested and whether or not this is adequate to meet their retirement needs. This can be just a 15-minute conversation to explain the benefit statement and to ensure that the member understands it. It provides a point of contact should the member have any questions.

If trustees believe that only 26% of their members have adequate retirement cover, shouldn’t it be their duty to inform the members of this? What members do with this information is then the members’ responsibility.

Another very urgent measure is a more detailed meeting when a member is five years from retirement. The majority of people only worry about their retirement the year they will retire, and by then it is too late to create a strategic plan for retirement.

Then, finally, on retirement, the company needs to ensure the member has access to decent advice. If companies want to step away from the liability of a defined benefit pension scheme, then the very least they can do is provide real support to members to help them make the most critical financial decision of their lives.

It is unrealistic to expect ordinary employees to be able to walk the minefield of retirement planning on their own, and quite frankly, the advisers need to start working for their fees.

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Maya Fisher French
Guest Author

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