I am not worried about the tax, it is not like it was my money in the first place. I will pay the tax and then buy a flat in Tenerife, which will keep me going for my retirement
This is a paraphrased real-life quote from someone I will call a pension freedomer – a new group of people who have taken, or are thinking of taking, ‘advantage’ of the new pension freedom rules.
The People’s Pension, a not-for-profit pension provider, State Street and an independent research company called Ignition took a small pool of people who are pension freedomers and followed them during their decision-making process over a nine-month period. This included video diaries, from which the above quote is taken.
When I heard it, it made me laugh – almost in a slightly condescending way: how could someone not think of their own pension pot as ‘their money’? How could they not be aware of the 40% potential tax liability? How could they think a flat in Tenerife would be suitable for their retirement as a source of income?
How could the woman say she did not need financial advice because she had done ‘ten hours’ of research, and ‘knew as much as a financial adviser’?
Joe Public
We all know this is rather worrying, because we work in the industry and have the benefit of knowledge. But the public does not, and the public does not always think rationally, or even sensibly.
The People’s Pension/State Street’s research is admittedly not as universally depressing as the quotes I have extracted.
Its research represents a cross-section of people in terms of age, and only screened those with very small pension pots and those with large enough pots to take financial advice, or likely to be self-directed towards a drawdown solution.
It focuses on that part of the population that is stuck in the so-called advice gap, post-Retail Distribution Review, which the Financial Advice Market Review (FAMR) acknowledged when it was published last week.
Unusually, FAMR was almost universally welcomed by the industry, in part because it is a genuinely well-thought and balanced discussion that does not pre-suppose the outcome before the industry has put forward all its thoughts.
There will no doubt be a lot of debate about what the real distinction between advice and guidance is to be in the future. Arguably, drawing a clear line – if that is possible – is the greatest challenge/opportunity the industry has faced.
Get it right, and there is a huge potential to improve financial advice provision in this country. It could be the sea change the nation needs.
Yet get it wrong, and we will have more costs and more regulations, and a ‘lost generation’ in the advice gap.
Lawrence Gosling is the founding editor of RP’s sister title Investment Week. His views are his own. Send any comments to him at lawrencegosling1@gmail.com
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