Greater pension freedoms have introduced risks that, without proper preparation and advice, threaten to leave people with little or no income to carry them through into their later years. This means access to advice and guidance is more important than ever.
When you also consider government initiatives such as Pension Wise and the Money Advice Service, which appear to have either ceased or are in a period of transition, there is limited access to impartial information and guidance.
Value of advice
A large proportion of the population, particularly those with smaller pots and less complex needs, are unlikely to seek financial advice either because they believe they cannot afford it or they do not recognise the value of advice.
Research from Aegon last year found that 73% of the UK working population admitted that the prospect of having to pay for financial advice puts them off seeking help.
This means a large section of the population is making important financial choices without access to all the options available. This may have negative repercussions for them in later life.
Recent figures from the Association of British Insurers reveal that in the last three months of 2015, the majority (57%) of pension savers who had taken a drawdown product were taking a sensible approach to accessing their funds, with withdrawals of 1% or less.
However, a minority may be withdrawing income at a rate that would see their money run out in a decade or less if their pension pot is their only source of income. Most worrying is that many withdrew money without regulated advice.
Data from the Financial Conduct Authority (FCA) reveals non-advised drawdown sales rose sharply since pension freedom began. Between October and December 2015, 32% of reported drawdown sales were not associated with a regulated adviser.
While more flexible than a traditional annuity, drawdown is a much riskier option because it exposes people’s savings to the performance of the stock market.
It is good news if markets perform well, and retirees can feel the effects of marked increases in their pension pot. But if they fall, so too will their pension values.
Rise of technology
In order to bridge the advice gap and encourage savers to seek professional advice, the government and FCA’s Financial Advice Market Review has recommended the use of technology to extend financial advice to a broader audience. At the same time, the pension reforms have generated a huge surge in demand for post-freedom retirement advice.
Many advisers are turning to technology to speed up the planning process in order to gain business efficiencies and make advice more accessible to a broader spectrum of clients.
People with less complex needs and smaller pension pots are at the greatest risk of deprivation in later life. Accessible, informative tools that are easily understood and help people navigate the market could boost engagement with an adviser earlier in their retirement journey and encourage them to save more for longer.
Pension Monster, an automated retirement guidance tool which we recently launched, is an example of technology that benefits both consumers and advisers.
A user enters basic information about their financial situation and goals and the system helps them map out their retirement plans and see the effect their saving has on those plans.
Automated guidance, and other technological advancements can help extend a firms reach to a greater number of savers and should form part of any adviser’s toolkit to help make advice more accessible to all.
Peter Bradshaw is national accounts director at Selectapension
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