Andy Curran, CEO Savings and Retirement, UK and Europe, Phoenix Group, said:
“The reality is the majority of people have to navigate the complexities of pensions on their own. SMF’s report identifies the cost of the huge Guidance Gap and how millions of savers could be substantially better off if this gap was closed. While regulated financial advice sets a ‘gold standard’ for helping people, it is not likely to be the solution for the vast majority. Even the Government’s free Pension Wise service is limited in its scope and only there for people aged 50+.
“Often, ‘saving more’ is seen as the solution to people’s pension challenges. But it’s just one factor. It’s really about ‘understanding more’ and helping people feel much better equipped throughout their life to make both big and small financials decisions that result in a better outcome. Finding a way to make the necessary guidance available is vital if we are to adequately support the majority of people.
“There have been some major initiatives over the past decade that have encouraged pension savings, raised standards for regulated financial advice and introduced greater flexibility and choice. We now owe it to everyone to focus on closing the Guidance Gap.
“Across Phoenix Group we currently have c13 million customers of which c 5.2 million in the UK are aged between 50-64. SMF’s recent findings show that over two thirds of this age group are not seeking help with their pension beyond the limits of the information we can provide, so we estimate that more than 3.5 million of our customers are making some crucial financial decisions without the level of guidance we believe they need. This does not sit comfortably with us. We all have a responsibility to savers and need to do more now.”
“At Phoenix Group we want to actively drive forward action to close this gap and we can’t do this alone. We need the whole industry to get behind this. “It’s why we are calling for a government-led Working Group to be set up to foster collaboration between the regulator, the advice community, providers and consumer groups to review the rules and address this challenge, so that millions more savers get to a better place, and a better retirement.”
Jane: A 65-year-old woman ready to stop working and start taking an income for the future. She’s unsure whether to take income from her pension or from other savings, with her main worry being running out of money.
Unless Jane accesses an IFA, she’s currently likely to get support that relates only to taking income from her pension – despite there likely being alternatives to draw money from her other assets which could allow for improved tax efficiency and growth.
If Jane makes an appointment with Pension Wise they will discuss pension options along with other factors to consider and technically within the current regulations, a provider could let Jane know about other income options from her other assets, setting this information out in an unbiased way. However, neither Pension Wise nor a provider can help Jane compare income options based on her own personal circumstances or help her prioritise which of the factors to consider is more important to her, so while she may come to the best conclusion, she is more likely to suffer from confusion and information overload.
To reach the best outcome for her, Jane needs help creating a personalised income withdrawal plan and, once she’s decided on a preferred approach, support planning next steps. Currently neither providers nor Pension Wise can support Jane in this way.
Phoenix Group’s asks
- Phoenix is committed to helping drive forward action across all stakeholder groups to explore the potential solutions that will enable all consumers to get the level of help and support they need to ensure they have the best possible financial outcomes, even if they are unable to benefit from Independent Financial Advice.
- This is both important and urgent – the generation who are making retirement choices now are those who, largely, do not have defined benefit pensions but neither have they had time to benefit from Auto-enrolment. People are facing complex choices and deserve more help. This evolution of approach to give consumers more help is possible as, post-Brexit we have the freedom to make changes to the regulatory framework we operate in.
- We need truly ambitious solutions to close the guidance gap.
- Insight into the complexity of consumer choices is a key part of solving this issue, and collaboration is needed to ensure the full picture and scale of consumer need, and risk of detriment, is explored.
- There is no single solution, we need everyone to play their part including government, the regulator, pension providers, employers and consumer bodies, so we can enable consumers to get meaningful help and support to enable better financial outcomes.
Phoenix is calling for
I. HMT and DWP to establish a joint working group with all interested stakeholders (MaPs, FCA, industry and consumer groups) to explore the complexities and find solutions to enable all consumers to get sufficient help and support so they can enjoy better financial outcomes.
As part of this, it’s important to:
a. Ensure there is an appropriate control environment, to pilot approaches and assess consumer outcomes.
b. To develop solutions and propositions that close the retirement guidance gap, and deliver better consumer outcomes
II. FCA to work with stakeholders to develop effective reforms to the regulatory framework for advice and guidance to enable implementation of solutions
III. Two initial measures to be given consideration, as this matter is urgent, and comprehensive solutions will take time
a. Government and MaPs expand the scope of Pension Wise being expanded to allow earlier and broader support to be provided.
b. The FCA to concrete examples of what ‘common sense’ help providers can give to customers in some specific scenarios.
These steps will not solve the problem but will help.