More people could begin to seek out financial advice to help with pension matters, according to a survey by AJ Bell. However, at the moment many have a go at retirement planning alone, which is a concern for savers, advisers and the government alike.
Paul Davis, financial adviser at Clear Financial Advice, said more people are likely to seek help to understand their pension entitlements, due to a better recognition that advice produces good investment results.
He was making the comments in response to a survey from AJ Bell, which found that UK consumers entering income drawdown are three times more likely to seek professional financial advice than they are to use the government’s free Pension Wise service.
More than a third (34 per cent) of people who took part in the study chose to see a professional financial adviser compared to just 12 per cent who went to Pension Wise.
However, issues still remain as 40 per cent did not seek any help at all, while the rest largely relied on friends or family.
Mr Davis said: “People that are doing it themselves or taking advice from family; that is financial suicide. By the time they have made a decision on their pension it is too late for them to [reverse that decision].
“[Yes] it will cost you to employ the services of an adviser. At the end of the day other people are prepared to pay for advice.”
AJ Bell has said that its findings reinforce how important it is for the Financial Guidance and Claims Bill to find effective measures that increase the take up of the government’s new single guidance body and get more people engaging with their pension decisions. The amendment proposes making guidance mandatory “before accessing or transferring defined contribution, defined benefit or money purchase benefits”.
Providers would have to ask customers “at the point at which they require access or a transfer of their pension assets” if they had received guidance. If the answer is "no", the provider would be required to “provide access to such information and guidance before proceeding”.
Tom Selby, senior analyst at AJ Bell, said if the government wants more people to take guidance, they should be provided with a fact sheet on their retirement options well ahead of the time they want to access their benefits.
This should happen alongside a "fundamental rethink" of the way the regulator requires providers and advisers to communicate with customers, with a fresh focus on simplification and getting messages to savers effectively.
Mr Selby said: “Financial advice or guidance can be extremely valuable and it is clear from our research that a huge proportion of people are not benefiting from this in relation to their pensions. There needs to be a mechanism to encourage more people to seek advice and guidance, but the most recent amendment to the bill needs further scrutiny.
“The majority of people who get to the point of accessing benefits have already made their mind up and want their cash straight away. Forcing them to take guidance at this stage is arguably too late. It would cause a delay in people accessing their money, which would undermine the fundamental principle that people aged over 55 now have the freedom to access their pension savings how and when they like."