Set up in 2015, it helps equip defined contribution pension savers nearing retirement with the information they need to use their pension savings wisely.
While it is true that providers and advice firms help to fund the cost of guidance, there are some good reasons for advisers and planners to be its advocates.
First, there is a direct benefit. People who had appointments with Pension Wise in 2019/20 were more likely than non-users to seek out professional help from financial advisers, tax advisers or accountants.
More than one third (36%) took advice in the three months after their appointment. That’s equivalent to more than 50,000 people, many of whom may not have even thought about using an adviser before the session. The numbers show advice take-up is nearly two-thirds (63%) higher after a session than before, providing further evidence it is a catalyst for people to take advice.
Second, guidance users tend to be more financially savvy and Financial Planning-orientated than average. When asked if they would rather think about today than plan for the future, 64% of users disagreed compared to 56% of all adults. Seven in 10 appointment bookers (72%) said they would pay for financial advice if the costs were reasonable, compared to fewer than half (48%) of adults.
That word ‘reasonable’ may look a bit weasel-y but it does suggest that generally people do value being directed by a professional towards a suitable solution. Once they get a taste of professional support, we think they are likely to want more. It also highlights the potential for firms to widen their retirement propositions across different types of pension saver from those with simple needs to those requiring an in-depth planning experience.
Third, guidance gives people more confidence that they can make better decisions with their retirement funds. That means they are less likely to fall for scams, which not only cost the pension saver but the financial services industry and the taxpayer too.
Appointment customers feel better prepared to make decisions which helps reinforce the benefits of the pension ‘freedom and choice’ rather than undermining it. If large numbers of ‘Middle Britain’ pension savers are found to have made poor decisions, it will place the entire policy under scrutiny.
The biggest problem with guidance is that too few people are taking up their free entitlement. The result is too many people are continuing to suffer from misconceptions and misunderstandings about their retirement choices and are vulnerable to poor decisions. That undermines the wider reputation of our sector and doesn’t help any of us.
We think that low usage means it is time that guidance sessions should be automatically booked for pension savers in their early-50s so they understand the pros and cons of each option before they make up their minds about how to access their pensions.
They should be able to defer these appointments if the time is not right or opt out altogether if they felt they already have the knowledge they need, for example, because they are receiving regulated advice.
Recent Financial Conduct Authority figures show more pension pots are being taken but fewer with advice. Guidance is clearly a doorway to more people taking advice so boosting usage is likely to have a positive impact on the number taking advice as well as helping to reinforce in the public’s minds the professionalism and expertise of the sector.
The Financial Conduct Authority is now looking at how to do this. We hope the regulator will be ambitious. Pension savers – and advisers – have nothing to fear and much to gain.
Stephen Lowe is group communications director at Just Group. He is a member of Just Group’s leadership team and is responsible for the Group’s corporate affairs, brands and marketing communications. He joined Just Retirement in 2011 and was part of the core team that successfully completed Just Retirement’s IPO and merger with Partnership Assurance. He also chairs the ABI’s retirement working group, is a member of the ABI’s committees for Long Term Savings and a Governor of the Pension Policy Institute.