The missing link in financial advice

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But for some employers emerging from the other side of AE, those brave few are starting to ask the question: “what next?”

A number of generally larger and more paternalistic employers were early adopters of corporate platforms, but for many employers they remain unchartered territory.

Corporate platforms do, however, offer a potential solution to several of the challenges that both advisers and employers are facing in a post AE world.

A few months ago I was engaged in a discussion with a number of employers. Perhaps understandably, those who had staged were recalling how challenging it had been, but one of the less obvious challenges they spoke about was communicating the changes to their workforce.

Not for any of the regulatory or logistical reasons you might assume, but rather due to the low level of financial literacy they had found among their employees.

This complaint was common across a range of industries. Areas you might expect such as retail experienced this challenge, as did others usually regarded as ‘professional’ and often assumed to have a higher level of engagement in financial matters.

For these employers, the answer to the ‘what next?’ question was clear. They needed to find a way to educate and inform their staff not just about pensions but about a range of financial matters. Enter the corporate platform.

The term ‘corporate platform’ has been banded around quite readily for some time, as an extension of those in the individual market, but there remains little consistency in exactly what the term means.

For me, ‘workplace savings platform’ is a more apt title – a portal that workers can access via their employer that addresses a range of financial education and savings needs.

And it would seem if my discussions are representative, this is exactly what employers are looking for.

Certainly this is borne out by experience at some providers. Some have continued to see the take-up of our corporate platforms growing steadily over the past couple of years.

Crucially, though, some of the larger clients are coming back to providers with the express desire to implement it now the dust has settled on their AE experience.

I firmly believe that workplace savings platforms will come of age in the post-AE pensions landscape, and here is why.

The characteristics and sheer volume of those entering the pensions market are changing beyond all recognition. Gone are the days where those saving for their retirement were sufficiently engaged that they had at least chosen to join their company scheme.

Even then most members found themselves in the default fund with no real consideration of their long-term savings other than a cursory glance at their annual statement.

Now we have millions of people entering pension saving for the first time on minimal contributions, and the only thing we know for sure about their level of knowledge and engagement is that they have not chosen to opt out.

Worse still, we also know that those entering the pension market for the first time are doing so against the backdrop of a much publicised reduction in state provision, increasing life expectancy, and often with unrealistic expectations as to what they will receive by way of income in retirement.

So, while the demand side is burgeoning, what is happening to supply?

Unfortunately, just at the point that more people than ever are entering the pensions market needing support and advice, many advisers are retreating.

RDR focused the mind fairly sharply on the cost and value advice can offer. For a majority of advisers, the profile of savers now entering the market is not that of people they can realistically hope to offer a commercially attractive and sustainable service.

A significant gap is therefore emerging between the vast swathes of people needing financial education, guidance and advice, and advisers’ ability to support that market.

I believe this is a gap that can be largely filled by workplace savings platforms. The functionality these platforms offer has a definite role to play in bridging the education gap that employers can see emerging.

Rather than an evolution of the individual wrap market with its focus on funds, the workplace savings platform is a breed apart.

Most good platforms contain a wealth of information and tools for users. They are very much geared around supporting and educating employees on a range of financial issues, and although retirement saving is very much at the forefront of the support that they provide, it is not done in isolation.

Platforms allow employees to consider all their financial needs in one place, balancing their longer term planning with more immediate concerns such as clearing debt or saving for a life event.

From an employer’s perspective, platforms can offer a cost-effective solution to aid financial literacy among workers, and from an adviser’s perspective they can provide support to a segment of the market that is largely uneconomical for them.

I also believe workplace savings platforms are here for the long term. We are currently being overwhelmed by the volume of new entrants in the pensions market, but for most of these people this is only the start of the saving journey.

By 2018 they will be putting a seemingly “massive” 8 per cent into their pension savings, and the challenge will then be to educate members to understand what this is likely to provide them with in retirement, and the potential disconnect between their expectations and the reality.

Moreover, looking beyond 2018, all these workers are entering a sausage machine that will ultimately end in some form of retirement decision.

The face of retirement is changing. Pension savers are going to be presented with even more options than ever on a topic they know very little about, and yet are expected to make decisions that will be crucial to their level of income for the rest of their lives.

The sooner we can engage with workers, and educate and inform them about their long-term savings and help support them through to retirement, the better.

From an adviser’s perspective, workplace savings platforms also make a lot of sense.

They help to provide a solution for the mass market that advisers can not currently support, but as the DC market matures they provide a longer term pipeline of members who may well benefit from ‘at retirement’ services.

And finally to employers. Simply offering a good-quality pension scheme is no longer sufficient to mark you out as an employer of choice.

But if my sample is anything to go by, many recognise they are enrolling their workers into pension schemes without giving them the tools to truly understand the implications, appreciate the value of the scheme, or indeed be empowered to take control of their own finances.

Whatever you want to call them, corporate platforms can help fill this gap, and I believe AE has provided the platform for them to move into the mainstream.

Lynn Graves is head of business development, corporate pensions of Scottish Widows

Key points

* A number of generally larger and more paternalistic employers were early adopters of corporate platforms, but for many employers they remain unchartered territory.

* A workplace savings platform is a portal that workers can access via their employer that addresses a range of financial education and savings needs.

* Workplace savings platforms are here for the long-term.