The UK’s drive towards encouraging people to save for their retirement has had the opposite effect thanks to complexity, a global study has claimed.
The 25-page report by the Defined Contribution Investment Forum, which is made up of 14 large investment firms, looked at countries such as South Africa, Australia and New Zealand where the pension environment is similar to that introduced in the UK on 6 April.
It found that more choice in the way a pension is invested tends to lead to inaction and take-up of financial advice has been low – signalling that this could happen in the UK.
According to the report: “Increased choice around how pension pots are taken as retirement income has added to the difficulty of decision making for savers.
It has still not persuaded them to seek help. Paradoxically, the freedom to choose how to use pension pots is being constrained by the options available.”
Instead, the report said employers and trustees should be given protection from legal and regulatory liabilities to encourage them to provide better guidance.
It said governments and regulators around the world have responded to savers’ reluctance to engage by introducing default options or by intervening in the market.
For example, in New Zealand those who do not make an active choice about their KiwiSaver auto-enrolment fund are directed into a default fund, while Chile has restricted providers to five investment funds with varying risk levels and US regulators have created a default alternative based on a target date.
Andrew Brown, chairman of DCIF, and director at Columbia Threadneedle, said: “In the countries we examined, design tends to focus on default funds built around auto-enrolment programmes.
“An area where all of the markets examined seem to see the same trend is in the take-up of financial advice, which appears to be low.
“It’s unrealistic to expect savers to become retirement gurus overnight, and even though the UK government has introduced Pension Wise, they will only be able to guide savers in broad terms, rather than advising members on their individual circumstances.”
Adviser view
Matt Timmins, joint managing director of SimplyBiz, said: “The government needs to use the PR behind pension freedoms to encourage people to take advice.
“Giving the ability to give advice to anyone other than advisers is quite a dangerous thing to do because it really ought to be a one-to-one relationship.”
