Pension freedoms a year on – how much progress has been made and what next? Andrew Pennie, marketing director at Intelligent Pensions explores
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One year on from pension freedoms and George’s message that ‘nobody will have to buy an annuity’ has been taken to heart with less than 20 percent of people now choosing the annuity option – a far cry from the 80 percent who were shoe-horned into annuities prior to the pension freedoms.
The pension freedoms have therefore broken the previous retirement income model but has it tackled the fundamental problems that existed and are people now getting better outcomes? The simple answer to that is ‘No’ and if anything, the picture might be worse than it was before.
Since pension freedoms we have actually seen fewer people shop around to find the best deal with 64 percent of annuity investors and 58 percent of drawdown plans being made with the existing provider.
The picture might be worse than it was before”
In addition, while the new freedoms deliver choice and opportunity like never before, they also come with increased risks and complexity. Not only are more people being caught out by pension scams but we are also seeing people make poor decisions and receiving poor options and communications from which to make poor decisions, all of which results in a large number experiencing, or on track to experience, a poor retirement outcome.
In George’s 2014 Budget he introduced a new guarantee to help tackle the increased freedom and choice so that “everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.”
This was a bold and strong statement and despite it being exactly where I think we need to get to in the future for pension freedoms to be a success, so far the government, through the combined delivery of Pension Wise and the Money Advice Service (MAS), has fallen well short of its promise.
The combined delivery of Pension Wise and the Money Advice Service (MAS), has fallen well short of its promise”
In recent months we have seen a number of reports and consultation papers about the pension freedoms, guidance and advice. A common theme of these documents is the fact that getting a good retirement outcome is actually far more complex than had previously been considered and a realisation that people need more and better support.
A stated objective of the Governments Public Guidance Review is: “People need financial advice and guidance that they can trust to help them make the best decisions about what to do with their money. The government is committed to ensuring that financial services deliver for consumers.” Clearly and quite rightly, financial services is expected to play a bigger part in the success of pension freedoms.
To demonstrate the Governments intent, they have moved quickly and taken action. MAS will be significantly scaled back and PensionWise consolidated into one new pension guidance body. In addition, the Government has tasked the industry to build a pension dashboard by 2019 and will (again) look to clarify the difference between advice and guidance - all of which is useful but by itself will not help people make better retirement planning decisions.
The missing part of the jigsaw is regulated advice”
The missing part of the jigsaw is regulated advice - interaction with a specialist adviser to tell a member, after understanding their objectives and circumstances, how best to use their pension savings. All delivered with the peace of mind that should the advice be wrong, the member will have the right to recourse through the Financial Ombudsman Scheme – what better protection and possible outcome for member, employer and trustee?
While regulated advice might be the missing jigsaw piece it is not without a number of challenges of its own – affordability, accessibility, trust and knowledge will all need to be tackled if regulated advice is to become the go-to solution. The FCA and Financial Advice Market Review have been much slower to react than the Government but there is no doubt the pressure is on to make both financial services and pension freedoms work together for the benefit of retiring DC members.
To find out more about the guidance versus advice debate please join us at Workplace Pensions Live on Wednesday 11 May at 3.00pm. In our session we will explore the risks and common mistakes many DC members are currently making and will look to define who needs advice, when they need it and what advice needs to deliver. In addition, the session will evaluate the source of current guidance and advice and look at how employers and trustees can do more to support their pension members.
To book your free place, click here:
Andrew Pennie is marketing director at Intelligent Pensions