Pensions and at-retirement income options are now so complex that Fidelity’s retirement director declared it to be similar to “rocket science”, saying that support must be on offer to help retirees and that regulated financial advice should become the default option post-April.
Speaking this morning (27 November) at the launch of a joint Fidelity and Pensions Policy Institute report into the complexity of retirement decision making, Alan Higham said guidance should lead to formal advice for the majority of clients to ensure decisions are made safely.
However, he added that “it must be safe to seek advice” and that “not every adviser is up to it”. He cited the Money Advice Service directory of advisers and said it “needs to be up to scratch”, recommending a full audit “to make sure”.
Mr Higham said: “The people giving guidance shouldn’t be expected to be the lifeguards on the beach covering everything, but they do need to make people aware of what they don’t know, shaking them up before ensuring they can hand over to safe, professional advice.”
Mr Higham has called on both government and the pensions industry to help those at most risk of making poor decisions.
His comments came ahead of the publication this morning of the regulator’s guidance guarantee policy statement, which has introduced new rules requiring pension providers to introduce all retirees to guidance services offered by Citizens Advice and The Pensions Advisory Service.
The PPI research found that those at most risk of making poor decisions have between £19,400 and £51,300 of defined contribution savings and no defined benefit savings. This covers 694,000 people, or 12 per cent of the population reaching state pension age over the next 10-15 years.
Holding more than £20bn in retirement savings, this group is most likely to rely on state pension benefits and therefore decisions on their DC savings will be crucial to improving outcomes in retirement.
A further 29 per cent of people, or 1.6m over the next 10-15 years, aged 50 in 2014 will be at medium risk of making poor decisions with their DC savings, with the size of both at risk groups expected to grow as a proportion of those reaching state pension age with private pension savings.
The report showed that people believe making an informed decision about access to DC savings was ranked by focus groups as the most difficult of all life’s financial decisions, above buying a house or any other form of insurance.
On the basis of the research, Fidelity estimated that the difference between a ‘good’ and ‘poor’ decision could cost around 20 per cent over a person’s life, thus potentially £4bn could be lost across the high risk group.
Mr Higham stated that policy makers need to take a step back, as they have been pushing in the wrong direction for too long, trying to educate people to do it on their own, when even professionals are prone to errors when faced with such complexity.
“It is rocket science, so it’s OK to ask for help, and there needs to be proper support and advice on offer.”