It is widely recognised there is a gap when it comes to people seeking advice before, at and post-retirement. In October 2015, Citizens Advice estimated 5.4 million Britons were willing to pay for advice but not at current prices, while 14.5 million were unable to pay for it altogether.
Although this investment is likely to be beneficial in the long run, just 2% of consumers said they would pay between £1,000 and £2,000 for one-off advice.
The Financial Conduct Authority (FCA) retirement outcomes review makes for disturbing reading. A third of non-advised drawdown customers are invested entirely in cash, missing out on up to 37% extra income over 20 years. While one in three recently entering drawdown do not know what they are invested in.
If this trend continues, people will be worse off through retirement than they could be. This highlights the value of advice to those in the know, but this value is just not apparent to many people.
Guidance and the gap
The financial advice market review (FAMR) made moves to make advice more accessible. But it seems the success of levers, if take-up is a guide, such as the pension advice allowance and tax relief on employer-funded advice, have had limited success.
The FCA stepped back from banning contingent charging, fully aware such a ban would reduce the take-up of advice.
Is it feasible to expect the so-called ‘advice gap’ to be filled by advisers, or can guidance on a mass scale step in to fill at least some of it?
The recent results from Pension Wise’s 2017/18 November evaluation are encouraging. Customers are more likely than non-users to take a range of relevant steps to plan for retirement. In the three months since their appointment with Pension Wise:
- 72% have calculated the income they will need in retirement (versus 34% of non-users).
- 71% have read up about their preferred pension options (versus 35% of non-users).
- 57% of customers have researched how long they will need a retirement income for (versus 28% of non-users).
This increase in engagement is encouraging but take-up of Pension Wise is still relatively low. Only 15% of retirees taking full withdrawal between October 2017 and March 2018 took up Pension Wise and this may be weighted towards those who are keen to be engaged.
But for me the outstanding statistic was that within three months of their Pension Wise appointment, 65% had spoken to a financial adviser, tax adviser or accountant. This is compared with 29% who use the Pension Wise website and 23% of non-users.
This gives me confidence that, if we can improve access to guidance, we can increase engagement with advice for those who need it.
The Single Financial Guidance Body has a big role to play in encouraging take-up of pension and retirement guidance. It also needs to ensure people access it in time to make a difference with their plans.
Providers need to bolster this provision with engaging tools and help, delivered when and how people will use it, and not just at retirement and behind a login. Guidance needs to provide a filter for people who would really benefit from advice and help people understand why that advice would be valuable to them.
The decisions they make when they access their pension are having a detrimental effect on savers. The FCA may need to look beyond the retirement pathways for a solution to how guidance can be delivered, broadly at the right time, to the right people and how this can then lead people to advice.
Perhaps the review of the retail distribution review and FAMR next year will be an opportunity to do this.
Carolyn Jones is head of pension policy at Fidelity International