Client Affairs
UK HNWs Worry About Retirement Income, An Opportunity for Financial Advisers?
Contributing Editor
12 July 2005

The majority of working high net worth individuals in the UK are seriously worried that their retirement incomes will not match their family...
The majority of working high net worth individuals in the UK are
seriously worried that their retirement incomes will not match
their family needs, despite average liquid assets of £1 million
($1,757,636) and average incomes of £100,000, according to
research from Tulip Financial Research, a UK research consultancy
(see Table 1). This contrasts with the views of already retired
HNWs, most of whom are more than satisfied with their retirement
incomes. The study compares the retirement incomes of HNWs born
in the baby boom of the forties with the retirement income
expectation of those born in the baby boom of the sixties.
Together they own more than £700 billion in liquid assets, over
two thirds of the UK total.
Table 1:How satisfied are you that your retirement
incomewill meet/now meets your financial
needs?Working
HNWsWorking HNWs
|
|
Working HNWs %
|
Retired HNWs %
|
Satisfied
|
45
|
68
|
Disatisfied
|
55
|
32
|
The survey says that working HNW worry about their
retirement because, although their average income is £98,000, their
expected retirement income is £64,000, a drop of £34,000 or 35 per
cent (see Table 2). This contrasts with HNWs already in retirement
who suffered a drop in income of only £10,000 or 13 per cent when
they retired, a much more satisfactory experience. It is this
widening gap between working and retirement incomes that disturbs
high earners as retirement beckons in their late forties and early
fifties.
No title
Table 2: The HNW Retirement Income Gap
|
|
Working HNWs
|
|
Retired HNWs
|
Average Income
|
£98,000
|
Final Earned Income
|
£75,000
|
Anticipated Retirement Income
|
£64,000
|
Actual Retirement Income
|
£65,000
|
Income Gap
|
£34,000
|
Income Gap
|
£10,000
|
The Tulip research shows the critical problem facing new
HNW retirees is the fast falling contribution of occupational
pensions to retirement income. Today’s retired HNWs get half (48
per cent) of their retirement income from occupational pensions:
new HNW retirees expect occupational pensions to contribute only a
third (39 per cent) of retirement income. This means more
dependence on less guaranteed sources of income, on income from
personal investments, from personal pension plans and, perhaps,
from continuing to work in retirement. HNWs approaching retirement
now expect to get a fifth (17 per cent) of their retirement income
from a personal pension, a quarter (25 per cent) from personal
investments and the balance (7 per cent) from working in
retirement. The expected contribution from personal pension
plans—up from a 9 per cent contribution for the current retired to
17 per cent for new retirees — an increase of over 100 per cent.
Tulip argues that the pensions gap provides a big opportunity for
financial advisers, particularly as only 60 per cent of HNWs are
taking professional advice and 40 per cent are making their own
plans and decisions. This “do-it-yourself” retirement planning is
likely to be a bad move, according to the Tulip study. “Our
research shows that the pensions crisis facing the UK does not
exclude the wealthy,” said John Clemens, managing partner of Tulip
Financial Research, in a statement. HNWs using advisers expect only
a third (32 per cent) to come from an occupational pension. The DIY
retirement planners expect only 5 per cent of retirement income to
come from personal pension plans; this rises to 30 per cent for
those advised by professionals. And today only one in three (38 per
cent) of DIY retirement planners have any personal pension plan,
compared with two out of three (65 per cent) of those advised by
professionals. It is apparent that professional advisers are well
aware of the “retirement income gap” and are ensuring that their
clients take steps to minimise the gap with personal pension plans,
said the Tulip study. But the DIY retirees seem blind to the
falling contribution of occupational pensions. Many HNWs coming up
to retirement face big drops in income that will make their current
lifestyles insupportable unless they take steps to boost their
retirement incomes via personal investments and personal pensions,”
said Mr Clemens. He added: “Those taking professional advice have
been made aware of this and are taking such steps; those not taking
professional advice appear to be over-confident that occupational
pensions will still bear the brunt.”