Pension FreedomJun 26 2018

Pension freedoms ‘widening the advice gap’

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Pension freedoms ‘widening the advice gap’

The pension freedoms have led to more than a quarter of advisers upping the minimum asset levels they require of clients, in order to deal with the extra demand generated by the changes.

Some 27 per cent of advisers surveyed by research firm AKG said the minimum investable amount or pension fund size they required of clients had risen because of the freedoms.

“AKG’s qualitative market research with advisers [showed] the shift upmarket for some businesses,” the firm added in its report, ‘Grasping the nettle: working together to achieve better retirement outcomes’, backed by Prudential and Standard Life.

When asked to note the client segments expected to bring advisers the most new business in 2018-19, 67 per cent of intermediaries pointed to at-retirement clients with £100,000 to £250,000 to invest. 

This was followed by at-retirement clients with more than £250,000, identified by 48 per cent, as Chart 1 shows.

Despite the increase in asset levels demanded by some, clients with smaller pots were still anticipated to account for most new business by a sizeable proportion of respondents, with 21 per cent pointing to those at retirement with funds of £50,000 to £100,000.

Only 39 per cent of advisers expected most new business to come from clients transferring from defined benefit (DB) pensions. As Money Management reports this month, FCA data has suggested DB transfer activity may have peaked.

AKG’s paper also highlighted the need for further education on how the pension freedoms work and the risks involved. Both advisers and consumers pointed to the risk of an individual running out of money as the main challenge in the post-freedoms world, but awareness of other issues was mixed.

Some 69 per cent of consumers were aware of the ability under the freedoms to take 25 per cent of a pension fund tax-free, but knowledge of the free guidance available from the government was less entrenched. 

Nearly 40 per cent of respondents agreed the reforms enabled them to do “whatever they want” with their pension fund.

“Further education is required here to clarify this and allow people to best steer themselves away from poor outcomes as much as possible,” the report said.

Rob Yuille, head of retirement policy at the Association of British Insurers, suggested the FCA’s retirement outcomes review would have to decide whether to hold back market innovation as a way to protect consumers.

“Given the radical changes the reforms brought about, as well as the complexity that the reforms present to customers, especially those who may be vulnerable, there has naturally been ongoing regulatory and political focus on how the retirement market is working for customers in practice,” he said.