Andrew Tully, pensions technical director at MGM Advantage, asks whether there is still room for advice in the annuity arena or if price comparison sites can do the job.
For once, the pensions industry is all agreed. Everyone approaching retirement needs help and advice to make the best possible retirement income decision given their circumstances, at the right price. But one of the more perplexing riddles is how we can achieve this for those with smaller pension pots – when consumers either cannot afford or do not value advice, and when many advisers only want to deal with wealthier clients.
This is not a new problem. However, this year has seen a new and harder focus on the issue, against the backdrop of increasing numbers of people retiring and following last year’s launch of the Association of British Insurers (ABI) code of conduct, as well as, of course, the Retail Distribution Review (RDR).
The ABI code of conduct on retirement choices has been issued at a time when 55% of people are not shopping around for an annuity. In many cases, their provider will not be offering the most competitive rates or access to enhanced terms, even though around 60% of annuitants could qualify for an enhanced annuity.
Bridging the advice gap
The code demands providers change their communications to push more people to investigate their options and increase awareness of enhanced annuities.
So far, so good. Providers have complied with the code and the new retirement packs are now hitting people’s doorsteps. But we need to wait and see if it will make a significant difference to consumer behaviour. The hope is it will encourage more people to shop around. But, if they do, is there anyone out there to help them?
The signs are that the RDR has lessened access to advice. Certainly, a number of banks have pulled out of high street advice – previously an obvious route to market for those with smaller pension pots.
Furthermore, anecdotal evidence points to advisers moving more upstream when searching for new clients.
Recent MGM research suggests some are even actively discouraging those with pots under £50,000 from approaching them. A significant proportion of advisers are still charging a fee for advice equal to a percentage of the pot size, even though 1.5% of £30,000, say, may not be sufficient to cover the costs of giving advice. Presumably, once more advisers have segmented their client banks, we will see a gradual shift towards a set monetary fee for retirement advice.
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