After big changes were announced to MAS, TPAS and Pension wise Andrew Pennie asks what this means for the provision of advice and guidance.
- Recent data shows Pensions wise has only been used by 17% of eligible people
- FCA data shows almost 70% of those taking UFPLS did not use Pension wise or an adviser
- People remain reluctant to pay for regulated advice
So the Money Advice Service (MAS) is being abolished and Pension wise and TPAS are being combined into a slimmed down pension guidance service. The search now commences on what the next new pension guidance service should look like.
We are only 12 months into the new pension freedoms and the government has moved quickly to try to tackle the problems of poor retirement decision making, low advice and guidance take-up and the ‘eye-watering' cost of the existing and often overlapping guidance structure.
MAS, since launch in 2010, has spent around £80m a year and Pension wise, according to recent data, has only been used by 17% of those eligible and at a cost of £494 per guidance session. Not only are these services expensive to run but it would appear the public don't value them greatly either. FCA retirement income data showed that almost 70% of those taking uncrystallised funds pension lump sum (UFPLS) did not use Pension wise or an adviser.
Against this backdrop is the worrying research on consumer knowledge and understanding. Recent PLSA research showed 70% of people approaching retirement plan to use income drawdown yet 53% thought drawdown would provide a guaranteed income and one in four thought there was no risk with drawdown.
We have a mis-match between peoples' understanding of pension freedoms and the use of guidance and advice made available to help people understand. Something had to give.
One thing we need to acknowledge is that we aren't going to make people pension experts. In the same way I have no desire or aptitude to tackle a DIY project, many others will not have the desire or skills to understand and make informed decisions about their pensions.
The current system of pension wake-up packs remain the core communication vehicle to tell people about the new freedoms but they are simply not working and worse still, are not even helping point people to available sources of guidance and advice.
Let's tackle advice versus guidance. It will remain important to have free independent guidance but I don't think it should be the focus of pension freedom support. After all, guidance can only tell you what you could do, not what you should do. As such, guidance might be useful to understand the implications of cashing in a pension, the different annuity shapes or how to shop around for an annuity but what it won't do is tell you whether you should use annuity, UFPLS, drawdown or a combination approach and how you need to invest to achieve your objectives.
Regulated advice therefore needs to become the core focus for pension freedoms support and it needs to be delivered in the pre-retirement years to help people get on the right track, take corrective action where needed and get a better understanding of what advice and guidance they will need in future – Can I afford to retire? Should I pay more in? Which retirement income strategy is right for me? How should I invest? Can I afford to take the risk? – all the questions people need answers to when making retirement decisions.
The current major drawback with regulated advice is the fact most people have a huge reluctance to pay for it either through mistrust of the industry or a lack of awareness of the benefits advice could deliver.
The recent Financial Advice Market Review (FAMR) findings indicated 14% would be willing to pay between £200 and £500 for advice yet HSBC research showed between 30% and 50% actually want advice but are put off by price. At the prices people are willing to pay, many regulated advisers would not be willing to offer advice.
My suggestion to the government is simple. Stop spending money trying to create a guidance infrastructure that most people don't value and doesn't go far enough to help people make the correct decisions.
Instead, use the saved money to give people access to regulated advice through some kind of ‘retirement advice voucher' initiative. Rather than someone being loosely directed to a free guidance service they would receive something tangible with a quantifiable value attached to it – far more likely to grab the recipient's attention: money for nothing!
Clearly, not all advice companies would wish to operate in this space and it would be necessary to define exactly what service the advice vouchers would need to deliver – no small task in itself.
However, I do know that there are already a number of advice companies who are delivering quality advice solutions for far less than the government is able to deliver guidance and which are far more likely to deliver a better customer experience and outcome.
For pensions' sake, it's time for regulated advice to come to the fore.
Andrew Pennie is head of pathways at Intelligent Pensions
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