Advice gap between IFAs and Pension Wise

At a recent round of AJ Bell seminars attended by about 650 advisers, Mr Morrison says only one attendee confirming they thought they would benefit from the proposed service.

Michelle Cracknell, chief executive of The Pensions Advisory Service, stresses the service will provide guidance and is not designed to replicate professional financial advice.

She says it will provide tailored information to consumers on the options available to them, but, unlike financial advice, it will not recommend specific products or providers. Ms Cracknell says the FCA is in parallel looking to encourage the development of affordable models of advice.

The Money Advice Service has also developed an adviser directory which will complement the guidance service and be used to make future advise referrals, she adds.

Pension Wise was designed to fill a gap between no advice and IFAs, says Darren Philp, director of policy and market engagement at The People’s Pension.

People who use Pension Wise should have a better understanding of the pros and cons of each option available to them, and some idea of their preferred route, Mr Philp points out.

Some of these routes will only be available to those who choose to engage a professional adviser, and Mr Philp says some savers’ circumstances will be more complex than can be catered for by Pension Wise.

He says: “We strongly believe that there will be a growing awareness of the role IFAs play in providing more in-depth expertise and personalised recommendations.

“However, the price gap between free guidance and regulated advice will remain a significant disincentive for some savers to engage an adviser.”

So, in terms of whether advisers will benefit from Pension Wise, The People’s Pension’s Mr Philp says it is simply too early to say whether advisers will win or lose from these reforms. However, he says it is possible that Pension Wise will normalise advice for personal finance.

Mr Philp says: “People engage the services of professionals (estate agents, solicitors, plumbers for example) at many times in their lives and for many different reasons. There is no reason why retirement financial planning should be different.”

Ultimately, Tpas’ Ms Cracknell agrees her service could prove a positive development for advisers.

Ms Cracknell says the users of the guidance offered by Pension Wise will be given a good sense of the value of advice and will be better equipped for a session with an advisor.

She says they will be signposted to the Money Advice Service directory to find a local adviser, which is able and appropriately regulated deal with their circumstances and needs.

Cost of advice

Karen Barrett, chief executive of the adviser search engine unbiased.co.uk, says the most common reason people search for an adviser is to seek advice on pensions. She says Unbiased has seen an increase in traffic to the site by some 15 per cent since the pension freedoms were announced.

Additionally, Ms Barrett says Unbiased’s research shows that only 27 per cent of people would be confident arranging an annuity without the help of a financial adviser.

The desire to seek advice at this point is clear, so Ms Barrett says it is reasonable to assume that it is simply the cost of advice that is deterring people.

She says: “At Unbiased.co.uk we have undertaken research across our advisers to provide a guide to the cost of advice.

“This will help consumers post-guidance to compare the cost of seeking proper advice with the potential costs of failing to do so – by making decisions themselves or using direct-to-consumer propositions based on limited knowledge.

“Over 800 advisers listing with us have signed up to our free pension check scheme, which offers both a free initial pension review and also £50 of any subsequent advice.

“We believe that people at the point of retirement are genuinely keen to know how an adviser could help them, and so mitigate the risk of making a bad decision.

“The adviser can also explain how, in making a personal recommendation, they assume the responsibility of making the right decision. This fact in particular would be most welcome to those seeking retirement advice.”

However, Richard Wilson, policy lead for defined contribution at the National Association of Pension Funds, says the NAPF Workplace Pensions Survey 2014 has shown, fewer than half (43 per cent) were prepared to pay something for independent advice.

He says no respondent was prepared to pay more than £500 and only 3 per cent were prepared to pay more than £200.

As a result of this reluctance to pay for advice, Mr Wilson says it remains to be seen if advisers will benefit from Pension Wise, although he points out the government has already said they see Pension Wise as a complement to professional regulated financial advice and other services.