According to Deloitte, around 5.5m people in the UK are either unable or unwilling to access financial advice before making important retirement choices. These financial waifs make up the so-called advice gap, a segment on which the industry and government have focused their efforts recently.
For the past 100 years, financial advice was perceived as free to the end user, a reasonable conjecture as advisers were remunerated by (hidden) commission. With the implementation of the retail distribution review (RDR) in 2012, consumers for the first time were required to pay directly for financial advice. The shift to fees has arguably resulted in most consumers falling into the unwilling camp - not unwilling to seek advice but more specifically unwilling to pay fees.
The pension freedoms announced by the chancellor in the 2014 budget - given to those unwilling to pay for advice - have only exacerbated the advice gap. George Osborne ought to have deliberated, before casually announcing he was allocating £20m in order for the over-55s to receive free financial advice to solve the issue.
The chancellor’s lack of planning was apparent in July 2014 when he backtracked. Advice was in fact guidance and the £20m he had promised should be raised by another industry levy collected by the FCA. The subsequent uproar from the overstretched financial services sector saw the FCA back down and the duty was reduced to 15 per cent of the budget.
With £20m secured, the government rather hurriedly set up Pension Wise to deliver the guidance and partnered with the Citizens Advice Bureau, who would handle the face-to-face sessions. Pension Wise is rather coy on its metrics and several freedom of information acts demanding the publication of its engagement data have already been rejected.
According to Pension Wise, to date, it has conducted 18,000 face-to-face and telephone interviews at a cost of over £35m. Association of British Insurers (ABI) research suggests 160,000 retirement products were purchased in 2015. So, broadly, only 11 per cent of consumers are using guidance from Pension Wise.
Nearly 950,000 have accessed the Pension Wise website to gain information and it should be acknowledged that many of these may also have sought advice from regulated financial advisers. To paint some big brush strokes, providing guidance to 18,000 consumers and spending £2,000 per consultation appears reckless and is undoubtedly not providing value for money.
Following these poor engagement results and its inability to provide any significant metrics on uptake, under vigorous pressure from the Works and Pensions Committee, Pension Wise has been burdened with the task of increasing uptake and raising awareness.
In terms of budgets going forward, the treasury has agreed to meet all the initial set up costs of Pension Wise and announced relatively quietly that the cost of Pension Wise to the industry will hit £35m for 2015/16, and it will provide a further £19m in additional funding. The somewhat irresponsible budgetary increase must solicit the question that if the uptake is low, why is the government doubling the budget?
No one was surprised when the government wasted taxpayers’ money in October, apparently for no other reason but to add more money to the coffers of advertising executives by propelling a further £8.5m into a campaign to raise awareness with employers of their legal obligations to enrol their eligible employees into the Nest.