Opening up retirement advice to a wider audience

With the pensions freedoms and choice regulation now firmly in play, members face a fork in the road when making a decision about what to do with their pension pot. With more freedom comes more choice, but also greater scope for making a mistake, a mistake that could be difficult to recover from.

Making the right decisions at retirement is crucial – they may affect a retiree for the next 20 to 30 years and they’re more often than not permanent.

Despite this decision dictating retirement income for an individual’s twilight years, a thorough review of options can be rare; without this individuals risk making poor choices. The LV= State of Retirement report notes that there is a trend of older people seeking advice from friends and family, where 58% of pensioners took financial advice from non-professional sources and 72% of people approaching retirement said they will do the same.

But will this be enough?

From our own research we found that 50% of employees confess to finding pensions terminology confusing and complicated. Are members doing enough to preserve their financial future, especially when there are free guidance services available? How do you know if you’re speaking to someone who is pretty knowledgeable about pensions and retirement?

The Pensions Advisory Service (TPAS) and Pension Wise (soon to be one entity) offer a starting point for those seeking guidance on retirement planning. With a free hour long meeting available, it at least gives people a flavour of what to expect and the complexity of the situation by highlighting the options available to those approaching retirement.

However it is important to state that this is only guidance and merely lays out the options available, the onus still firmly remains with the individual as to the path they take; a lot of pressure for an hour long meeting especially if you’ve never thought too much about pensions and retirement before!

Making solid decisions

Financial worries seem to be a perpetual burden in many of our lives and that’s when we have a job with the opportunity to earn more. In retirement, we may not want to continue working 9 to 5. Our decisions need to be air tight, grounded on solid (information) foundations not from an over the garden fence conversation with a neighbour.

With this in mind, there is undoubtedly a growing need for financial advice. Whether members recognise that they there is a knowledge deficit is another matter.

The advice gap

The Financial Advice Market Review (FAMR), published in March 2016 by HM Treasury and the Financial Conduct Authority (FCA), highlighted an ‘advice gap’ stemming from declining advisory numbers and a lack of cost-effective solutions.

Advice has traditionally been perceived as a service for the wealthy. The FAMR report also draws attention to two further pieces of research: quoting findings from NMG who highlight that some people question the value of advice and believe it to be expensive despite not knowing how much it costs, and research from Mintel who note that over one third of people do not feel as though advice caters for people like them.

The advent of robo-advice

The FCA has firmly advocated the development of automated advice otherwise dubbed ‘robo-advice’ to provide financial advice to the wider market. The Advice Unit set up under the FCA’s Project Innovate has been established to provide regulatory feedback to firms developing automated advice models in a pragmatic approach to devising regulation for this fledgling style of advice delivery. It provides a scalable model that can be rolled out to the mass market that is currently under served by the advisory sector, and realistically, are the ones that are probably in most need of financial advice.

Robo-advice is beginning to gain traction in the UK. Although it is still in its infancy, there is encouragement from the FCA for continued exploration on how people access information at retirement. With positive growth signals, automated advice services are likely to become a more viable option for those that cannot afford traditional face-to-face advice or don’t feel comfortable speaking to an adviser – it could become a democratising catalyst for the industry.

We’re seeing practically every industry being disrupted by technology, but there is always the danger of getting carried away with it, that it is the be all and end all. Not everyone is obsessed with technology or is a willing adopter. Markets have moved from mass marketing to an ‘audience of one’ and this needs to be factored into the delivery of financial advice.

We don’t all like to be communicated to in the same way; this is obvious from our Employee Insight research report. So although technology will help in providing a solution to a wider market, it is by no means the silver bullet and traditional financial advisory methods will continue to flourish. However technology now undoubtedly opens advice options up to the wider audience.

Rob Tinsley is head of retirement at Capita Employee Benefits.

This article was provided by Capita Employee Benefits.