Unwanted freedom

Financial Adviser

Six months on from the start of pension freedoms, it is clear that people are still not taking full advantage of their supposed freedom.

Early figures suggest that people have not rushed out to splash their money around, in many instances taking tax-free cash to pay off the mortgage, and then deciding what to do with it.

The real problem has been that people do not know what to do. It is all very well saying they are free from the strictures of badly-paying annuities, but now the field is supposedly open, many are hampered by indecision.

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Pension Wise was set up to try to fill the gap left by commission-based financial advisers who have left the field.

In pre-RDR days, this gap would have been filled by advisers who could afford to take on clients with small pension pots, as commissions would subsidise them; now they are based on fees, many pensioners cannot afford them.

This week’s report from the work and pensions select committee highlights the extent of the problem.

While finding it difficult to establish how successful Pension Wise is, the committee surmises that fewer than one in ten people accessing their pension pots has used the service. The suggestion is that the scope of the service is too narrow, and many people need follow-up sessions.

The problem is that what people really need is proper advice – hand-holding by an expert who can tell them in an informed manner what their choices are.

Post-RDR people have to pay for it directly through fees, but few can justify the costs. So what will happen to these “lost” pensioners? The Financial Advice Market Review may provide some answers, but the Treasury needs to come up with a solution before too many slip through the cracks, succumbing to bad deals and unscrupulous providers.