Pensions  

Wild disparity in take-up casts shadow on guidance pledge

Fresh questions have been raised over the government’s retirement reforms after a report from the Chartered Insurance Institute and a pilot study conducted in association with The Pensions Advisory Service showed wild disparity in take-up of ‘guidance’ to help inform decisions.

The guidance guarantee, initially pitched as a promise to offer “free face-to-face advice” to those facing the plethora of choices now open at retirement, is seen as critical but has been the subject of consternation over who will pay for the service and whether it undermines full advice.

Now new research from the Chartered Insurance Institute conducted among more than 1,000 UK adults within five years of retirement has revealed that 92 per cent might make use of the guidance guarantee.

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However, this overwhelming majority clashed with the results of a pilot project carried out by Legal and General and The Pensions Advisory Service earlier this year, which showed just 2.5 per cent - just one in 40 prospective retirees - might make use of various guidance options.

If the latter prediction were to prove accurate, it would raise concern over the prospect of pensioners making poor decisions with their fund and running out of money in retirement.

Tim Gosden, head of strategy for individual annuities at L&G, explained to FTAdviser that while the firm’s own consumer research had come back with similar findings to the CII - only 11 per cent of people surveyed discounted guidance outright - this pessimistic finding came from a ‘pilot study’ conducted in April and May.

“We contacted 9,000 L&G pension policyholders, half of whom had recently received their retirement ‘warm-up pack’ and the other half who were reaching 55 years-old next year. They were given the option of getting guidance from us, from Tpas or from an IFA, with the response rate being roughly the same for all three, but all very low at around 2.5 per cent.”

Mr Gosden continued that the “big disconnect” is people actually taking action when they are written to and actually have to pick up the phone.

“I think these rates will improve as the media and communications builds up next year... I also believe that the guidance will result in more people taking up financial advice, as this is just an exercise in giving people their options.”

Hargreaves Landsown’s head of pensions research Tom McPhail said the results proved guidance take-up would be low and would put pressure on the FCA to ensure providers, which he said will likely be contacted directly by consumers, were subject to adequate ‘controls’.

“We must ultimately realise take up of the guidance guarantee will be low and retirees will be contacting providers of retirement products be that annuity, drawdown or uncrystallised lump sums directly.

“As such, it is imperative for the Financial Conduct Authority to put in place appropriate regulatory controls to ensure individuals looking to take advantage of the new pension freedoms receive the relevant information and continue to shop around for the most appropriate retirement option.”