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.
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.”
The CII commissioned its survey during July, contracting more than 1,000 UK consumers within five years of retirement, who had defined contribution pension pots and other assets each of less than £100,000 and who did not have a financial adviser.
The study found that relevant personalisation is an expectation for 65 per cent of respondents planning to use guidance. One in five expect a specific recommendation based on personal circumstances and 45 per cent expect a tailored list of options for someone in their circumstances.
Whilst it remains unclear exactly how guaranteed guidance will work, the CII found that 57 per cent of people would value receiving personalised face-to-face advice. Almost half of those surveyed (48 per cent) expressed concerns about how they will cope financially in retirement.
The research also showed that 97 per cent stressed the importance of impartiality and expertise of the organisation and staff providing the scheme.
The survey also revealed that a third would see guidance as an enabler, helping consumers to go on and make their own informed decisions, whilst almost a quarter (24 per cent) would consider taking further professional advice.
Laurence Baxter, head of policy and research at the CII, said: “What we have found is that almost half of those nearing retirement lack confidence in their own ability to make informed decisions regarding their finances and for most people expertise and impartiality will be key for those delivering guidance.”
Mark Stopard, head of product development at Partnership commented that the overwhelming message from the report is that in order for guidance to be a success, it needs to be tailored, relevant and personalised.
“The new pension regime not only provides additional freedoms but puts far more responsibility on individuals to make the right choices for their circumstances. Done right, the guidance guarantee can facilitate this but people need to be motivated to engage and will only do so if they feel that they will personally gain something from the experience.”
peter.walker@ft.com
