JPMorgan Fleming is today urging government and industry to redouble efforts to recognise the role of pension advice in the face of new research showing defined benefits continue to wither.
JPMF makes the plea in its fifth annual defined contribution survey.
The need for good advice is becoming increasingly important because the continued shift to DC schemes is loading investment risk onto employees, and increasing the importance of their investment decisions, JPMF says.
The number of DB schemes closed to new members is twice what it was just two years ago – 61% against 30% - according to the 155 responses to the survey questionnaire received from the top 1,000 UK pension funds.
The pace of the shift from DB to DC continues at about 12% annually, JPMF says, which means in just a few more years a large number of people will be forced to make investment decisions that typically they would not have concerned them.
”There is no legal obligation to provide financial planning guidance to pension scheme members at the moment, but the need to provide financial advice is likely to become much greater as DC schemes become the more prevalent alternative to DB, and as DC schemes provide more fund choices available to members,” says Karen Robertson, head of DC services JPMF.
JPMF points to two other issues as further support for its call to advice: the new lifetime contribution limit, and the shift by fund managers towards asset classes other than equities.
Based on an extrapolation of the figures received through the survey, JPMF says some 94,000 people will become caught out by the limit – a far higher estimate than the 5,000-to-10,000 figure from the National Audit Office.
Asset allocation is also shifting, the survey reveals.
Some 40% of DB schemes made “significant” asset allocation decisions in the past year, helping reduce the average equity exposure to below 60%. Most of this change has resulted in an increased exposure to fixed income to better match assets against liabilities, according to answers provided through the survey.
”The question for industry now is are members receiving all the education and guidance they need to make informed investment decisions, particularly with a growing interest in alternative asset classes, which are generally perceived as more risky than conventional asset classes?” Robertson adds.IFAonline
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