Last month the Financial Conduct Authority released a consultation titled “The stronger nudge to pensions guidance”, proposing to make it mandatory for providers to offer consumers a final opportunity to take Pension Wise guidance at the point they wish to access their pensions savings.
While we support this move as a step in the right direction, with only around 10 per cent of the UK adult population currently taking financial advice in any form, is guidance rather than professional advice going to produce the desired outcome of financial security and wellbeing in retirement? On its own, probably not.
Evidence suggests that initial concerns around the sustainability of income for savers in retirement may have been misplaced.
Rather, the challenges of affording savers total freedom and choice have manifested themselves in savers choosing to do nothing at all. In its Retirement Outcomes Review, the Financial Conduct Authority found that 33 per cent of non-advised savers found themselves in cash or cash-like arrangements, having either been defaulted there or chosen the path of least resistance.
While it is right that moves have been made to protect consumers against this type of decision paralysis, it is our view that not enough focus has been given to the support for individuals in making retirement decisions.
The existing solutions, while predicated on consumer protection, will only ever deliver outcomes for consumers that are 'good enough', rather than the best possible outcome.
This speaks to the limitations of the focus of regulatory and policy intervention to date in making a success of freedom and choice. Products designed to be suitable for a broad demographic may work extremely well during the accumulation phase, but individual needs in retirement are generally far more unique, and it is at this point that individual decisions, where possible, should not be outsourced to defaults.
It is our belief that consumers who have access to regulated financial advice will receive substantially better outcomes in retirement than those that do not.
We are increasingly concerned that a two-tier system of retirement is emerging. On the one hand, there is a cohort of consumers who are well served by regulated financial planners and wealth management businesses.
However, the vast majority of savers remain unsupported or reliant on guidance services that, while welcome and useful, cannot adequately prepare an individual to make financial decisions that could have ramifications for more than 30 years.
We believe the best outcome would be for more consumers to be able to call on the services of Pimfa members, but it is also the case that this is not necessarily realistic in the short term.
However, there are legislative options the government could take to boost participation in financial advice, as well as create a better, more targeted financial guidance system.
Given that we are no longer restrained by our relationship with Europe, now is the time for government and the regulator to review many of the structures that present barriers to people receiving the support they need at the point of retirement.