Personal Pension  

Only 42% will use ‘guidance guarantee’: MGM

Almost half of consumes said they would ‘definitely’ or ‘probably’ use the ‘guidance guarantee’, promised in this year’s Budget, once it is implemented in April 2015, new research has revealed.

Research from MGM Advantage revealed that 42 per cent of 2,367 consumers would use the service.

Around 27 per cent said they would be ‘unlikely to’ or ‘definitely would not’ use the service, leaving 31 per cent who do not know whether they will or not.

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In this year’s Budget, chancellor George Osborne said that all consumers will be offered free guidance at the point of retirement. He promised that individuals approaching retirement will receive “free and impartial face-to-face guidance to help them make the choices that best suit their needs”.

The ‘guidance guarantee’ is currently under consultation, however, many commentators have suggested that the Pensions Advisory Service and the Money Advice Service would be best placed as they already have the infrastructure in place.

Andrew Tully, pensions technical director at MGM Advantage, said: “We know from our experience of the open market option for annuities that overcoming inertia plays a crucial role in getting the best value from your retirement savings, so this service will need to be carefully marketed to make it in any way effective.

“As around half of retirees simply rolled over into an annuity with the holding provider in the old world, it was clear parts of the market were not working properly. But if many continue to roll over into the holding provider’s drawdown (or annuity or other solution) the market still won’t be working properly. That’s why access to guidance and advice will play such an important role.

“We need to think of new ways to engage and encourage people to use the guidance service, and go on to seek professional financial advice, offering help at various points on the retirement journey, while minimising costs. Or despite the greater flexibility and choice being introduced many customers may end up with poor outcomes.”

Michelle Cracknell, chief executive of Tpas, added: “This research is a good reminder that we will have to work very hard to demonstrate to people the benefits of taking guidance.

“Guidance services already exist but not enough people know about them or use them. We see the Budget promise of guidance as an opportunity to encourage more people to take up the opportunity but we will need to lead the horse to water and show them that the water is clear (impartial) and it is good to drink.”