Pension industry experts have highlighted a high proportion of investors are making “poor decisions based on poor advice” and a reluctance amongst firms to provide advice on pensions.
The Financial Conduct Authority’s (FCA) latest publication, Driving Purposeful Cultures, Pensions Management Institute president Lesley Carline and Duncan Watson, CEO of EQ Paymaster, co-authored an essay on the pensions sector.
The essay pointed out the need to adapt the pensions market after the “arrival of auto-enrolment and defined contribution freedoms” altered the landscape.
It said “regulatory inhibition” had resulted in a reluctance from firms to provide guidance around pensions, which resulted in bad outcomes for investors.
“We are all concerned about overstepping the advice/guidance line which has led to several organisations reluctant to help scheme members avoid bad outcomes. At an individual level, firms report dedicated teams wishing to deliver a quality service becoming frustrated at not being able to help,” the essay said.
It added: “Even with the ability to invest in developing and delivering regulated advice to members, firms have held off due to uncertainty and fear of potential consequences.
“Research by several organisations has shown a high proportion of members making poor decisions based on poor advice. This could have been avoided if organisations felt comfortable providing guidance services. As valuable as the sector’s legislative and regulatory framework is, it can also inhibit us from doing what is best.”
This follows a mass exodus from the defined benefit (DB) pensions transfer market by financial advisers after pension freedoms sparked allegations of mis-selling.
Eldon Financial Services director and Chartered financial planner Gemma Siddle (pictured) said she chose to remain in the DB market for the benefit of clients.
“We decided to stay in the market in an ethical, cultural sense. If all of the firms applying for pension transfer gold standards left the industry then where does that leave us,” she said.
Handford Aitkenhead & Walker Chartered financial planner Alisdair Walker, who still advises on DB transfers, said regulation around pension advice should be enforced more effectively.
“It’s generally concerning there’s still a situation where people can be receiving poor advice in relation to their pensions. There shouldn’t be a situation where enough people can receive poor advice that this needs to be mentioned,” he said.
“We still deal with these types of inquiries and with the number of advisers who do so reducing significantly I hope that the firms remaining are doing a thorough job and providing high-quality advice, but there is always a concern where supply reduces but demand remains the same.”