Cost is key factor in decline in retirement income advice

Cost was the overwhelming factor behind the decline in people taking regulated advice for drawdown and annuity purchase according to 59% of respondents.

The decline was highlighted in the most recent iteration of the Pensions Policy Institute's Future Book. However, cost was not the only factor behind the shift according to one participant who said: "I believe there is a reluctance by members to engage with the advice process." Another participant said cost was a factor alongside lack of trust.

More than one in ten (11%) of those who responded thought the decline was due to a lack of information while 9% thought it was down to overconfidence. One pundit said: "People know what they want to do, and they don't want to be told to be more sensible."

Of the 21% who said the decline was down to other factors, a lack of trust was highlighted by many who responded. Others said that many scheme members simply do not understand the value of advice. One said: "It's difficult to value financial advice when you don't understand the value of not taking it. Better financial education is essential."

 

Only one in five (21%) of Pensions Buzz respondents agreed with The Pensions Regulator's executive director that there is no affordability crisis in DB.

A whopping 66% of those who answered the question disagreed while 13% were unsure.

Of those who agreed with the regulator one said they agreed that the "crisis has been exaggerated in some quarters." Others said the crisis was more to do with how liabilities are measured.

"There is, and has been for years, a valuation crisis, but it suits both the pensions industry and sponsoring plcs to pretend the crisis is in affordability," said one participant.

Of those who disagreed with Warwick-Thompson one said he "was living in cloud cuckoo land. It is unaffordable, it is creating too much significant differentials between DB and DC members and employers are just simply saying ‘enough is enough'." Another participant suggested Warwick-Thompson should "talk to a few CFOs" about the situation.

Those who said they were unsure pointed to the range of views held on the subject. One said: "Affordability is quite subjective. It depends on the priorities of the sponsoring employer."

 

Almost one third (30%) of those who answered the question thought the health of the scheme should be a factor in the frequency of valuations. However, this was dwarfed by those who disagreed with a massive 68% taking this view. Only 2% said they didn't know.

One person said they thought the approach was "a sensible idea as long as the financial health is monitored regularly" while another said: "A regular sense check is fine. The current three-year review and stupid discussions that arise between company and trustee are just unhelpful."

However, there were also strong views on the other side with one pundit saying, "A set frequency avoids surprises from never checking and there is nothing stopping a scheme from valuing more frequently." Another said: "How do you know the scheme is healthy if you don't get a valuation now and again?"

Of those who said they didn't know, one said they thought it was "an interesting idea" and handy for healthier schemes as foregone valuation costs could be redirected to scheme funding improvements. However they added: "Imagine that actuaries might object though!"

 

There were a wide range of views with over a quarter (26%) saying you need a minimum of five years' worth of data to determine the skill of a fund manager. Almost one in four (38%) thought you needed more data and went for the ten-year option. A further 11% thought 15 years' worth of data was needed.

Of those who opted for five years one said that "anyone who relies on more than five years data is sadly deluded. I could also say anyone who relies on a fund manager rather than a fund's performance (whoever may be managing it) is in danger of giving the manager a celebrity status they may not deserve."

Of the 11% opting for 15 years of data one said it would allow performance to be viewed over two economic cycles. However, another said: "I don't mind if they are lucky. It works in our favour. The trick is knowing when to move away."

Of the remaining results 5% of respondents said they would opt for 20 years' worth of data while 3% went longer with 25 years. Almost one in five (17%) chose the "other" option.

 

The use of online education tools is the way to go in improving member outcomes according to 60% of the Pensions Buzz audience. Only 26% of those who answered the question disagreed with the idea while 14% said they didn't know.

However, many of the people who thought they would improve outcomes went on to qualify their answer by saying outcomes would not be improved by much. Others said the use of such tools would not be successful if used in isolation.

Another said they could work but only if they are developed by the younger generation.

"People like that sort of thing," one said. "But let YouTubers and the gaming industry write the background. Some actuaries cannot explain concepts to engaged trustees, never mind disinterested youth."

Of those who disagreed with the concept one said "there is no better route (to engagement) than being in the same room as a warm body." Another said: "What will improve member outcomes are higher contributions!"

 

The weekly tracker took a bit of a tumble this week and hit negative territory at -8.1. Out of 111 responses only 4% thought it was very likely assets would grow in value over the next six months while 9% thought it was very unlikely.

 

To see the results in full click here.

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• Topics
• Industry
• Pensions Buzz
• Financial Advice
• Andrew Warwick-Thompson
• TPR
• The Pensions Regulator
• defined benefit
• Triennial Valuations
• fund management
• education