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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 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. No title

Table 1:How satisfied are you that your retirement incomewill meet/now meets your financial needs?Working HNWsWorking HNWs

Working HNWs % Retired HNWs %

Satisfied

 4568
Disatisfied 5532

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

£64,000Actual Retirement Income£65,000
Income Gap£34,000Income 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.”