By Kevin Hollister, Actuary and Founder of Guiide
The latest Work and Pensions committee report and the new Regulations requiring a stronger nudge to Pension Wise are giving one clear message.
It is common knowledge that a large proportion of pension savers do not seek advice at retirement, or in the years running up to retirement. Not taking advice for whatever reason is a personal choice, but for those who do not, they need help.
Call it guidance, enhanced guidance, whatever the name the result is the same, savers just need help. Help to understand the choices available to them, and much more importantly, how to use them to get the retirement income they want.
As an industry, we have known this need would arise from the day the pension freedoms were announced and it became clear advice would not be compulsory.
So, five years after the freedoms came to light, it is evident that the routes to provide this help are still not coming from where the saver would expect to turn first, i.e. their employer, scheme or provider. Either that, or the help that is provided is not enough, nor the right type of help people are actually looking for.
One source of help is Pension Wise. This is well regarded by those who engage with it. If providing a stronger nudge to Pension Wise increases engagement with the service at retirement then it is to be applauded. However, it seems an inappropriate time to start engagement with a saver.
There are two distinct life elements to anyone’s saving journey
- The accumulation phase – building up pension pots, savings and entitlements to other incomes like the State Pension
- The decumulation phase – where retirees draw upon these savings and entitlements and perhaps look to add other forms of income such as part time work to support retirement.
Providing individuals with a guidance appointment at retirement, i.e. at the point they start to take an income, will not help the high percentage of individuals who reach retirement with insufficient savings to provide for their needs.
As an industry we need to be engaging people years before this. We need to help them understand much earlier what the one key objective is: How they can use their pension pots, along with other pensions, savings and income, to put together a sufficient total income plan for retirement.
Only after a saver understands that income plan, can they understand how much they need to save.
Even with the best plan, situations and events will not remain static. Many things will change over time and savers need a constant source of guidance, both during the journey to retirement and, perhaps more importantly, after retirement, to help them achieve the best possible outcome.
Engagement at one fixed point in time offers little to achieve this outcome.
The Work and Pensions Committee have coined a new phrase in their report – “Enhanced Guidance”. This is:
“Guidance on the options available which is tailored to an individual dependent on the information they provide, without a recommendation. This is not a regulated activity.”
We are delighted to hear this new phrase. For two years now, Guiide have been providing precisely this to our users.
Not in a one off manner, but by supporting them along their journey towards retirement and, we hope in future, during their post retirement years.
If as an industry we are going to provide this much needed enhanced guidance, it must be free to access, tailored to the details the individual provides and most importantly, delivered in a manner which provides ongoing support throughout the saver’s lifetime.