Can workplace pensions help cross the advice gap?

  • Learn about the advice gap
  • Grasp the difficulties facing the industry in order to plug this gap
  • Learn about how the regulatory measures introduced to encourage people to take advice
Can workplace pensions help cross the advice gap?

In just a couple of months last year, two separate pieces of data captured perfectly the diverging trends within the UK retirement-savings landscape. One indicated promise, while the other pointed towards a crisis.

In July, the Pensions Regulator (TPR) announced that the number of people automatically enrolled in workplace pension schemes had risen above 8m. This followed an earlier report that found the overall proportion of private sector saving had increased by 31 per cent.

Just two months earlier, however, the World Economic Forum published a white paper titled ‘We’ll live to 100 – how can we afford it?’. As Chart 1 indicates, the forum predicted the UK’s retirement savings gap would widen by 4 per cent a year from 2015, reaching $32trn (£22.8trn) by 2050. Importantly, this estimation did factor in forthcoming auto-enrolment (AE) contribution hikes.

On the surface, the main conclusion to be drawn is that, despite increased savings levels, many people in the UK will reach retirement with a significant wealth shortfall. Encouraging more consumers to take advice is part of the solution, but recent attempts have not met with success.

One way of offsetting this might be to take advantage of the nascent savings culture created by AE, and its potential to boost engagement. Though it is widely acknowledged that current contribution levels are insufficient, AE could yet provide the springboard to launch advice into the workplace and tackle a lack of financial awareness.

With a number of initiatives already in play to get individuals more involved with their finances, and digital innovation offering further opportunity, some say the time is now for workplace advice.

“[Because] AE is a workplace initiative, it seems sensible that this is also the home of financial advice and guidance,” says Jane Goodland, responsible business director at Old Mutual Wealth.

Health and wealth

But a number of obstacles stand in the way, including the very reason for the advice gap itself: cost.

Questions have been raised as to whether face-to-face advice can be realistically implemented across workplaces given the limited involvement advisers have had with AE. Rob Clarke, a financial adviser at Almary Green, firmly believes that it can – but only if employers bear the cost. “It comes down to the employer to some extent in how paternal they are. It’s all a matter of how it’s paid for,” he says.

This view is shared by Phil Blows, director at Wealth Wizards, who says: “The crucial difference with this service is that it is delivered as an employee benefit. This is arguably the most engaging way of delivering financial advice to the workforce as employees are more likely to use the service if it is funded as part of their benefits package, rather than search and pay for the services independently.”

Mr Clarke has observed employers’ reluctance to pay advice fees to help with AE, preferring to use their own firm’s time and resources, even though these are unknown quantities.