Research from the Department for Work and Pensions (DWP) reveals there is a gap in the provision of advice on pensions to people on lower incomes, an area where most of the advice is given by IFAs.
Advice on pensions and savings for retirement – qualitative research with financial intermediaries nvestigates the role of financial intermediaries, including IFAs, and tied and multi-tied advisers working for banks, building societies and insurance companies, in advising people on their retirement.
The findings, which the government will consider when deciding how to promote pensions and savings products, revealed financial intermediaries have very few clients on low incomes because they don’t tend to approach them for advice.
The report also highlights the fact that changes in the pension planning marketplace have raised the quality of advice offered, but points out that the availability of advice for people on low incomes has actually declined. It also reveals IFAs do not tend to market their services to people on lower incomes because the commission they earn in this sector of the market is too low to make it worthwhile.
The 74-page report notes there is “clearly a gap in the provision of advice on pensions and retirement planning to people on lower incomes. Most advice in this area is given by IFAs, but it is unrealistic to expect them to expand their work with people on low or moderate incomes.”
It adds that few people on low wages would be willing to pay for fee-based advice, and the levels of commission payable on small pension contributions mean IFAs can earn little from advising on them.
Instead the report suggests a number of initiatives designed to increase the availability of advice to people on low or moderate earnings, including the introduction of a basic advice regime for simple saving and investment products, like stakeholder pensions, as well as developing the amount of general advice available through not-for-profit advice centres, such as the Citizen’s Advice Bureau.
In an effort to raise awareness about the State pension system, and to help people make informed choices for retirement, the report also points out that the DWP has developed a range of information tools to aid financial intermediaries, including State pension forecasts, combined pension forecasts, a Pension Credit calculator and a web-based retirement planner that will be launched in Spring next year.
The biggest barrier to retirement saving, according to the advisers interviewed in the research, amongst low and moderate earners is apathy combined with a mistrust of pensions, pension providers and advisers. The research report which was conducted by the Personal Finance Research Centre from the University of Bristol, suggests that these are far more significant barriers to saving than the potential disincentive caused by the Pension Credit and other income-related benefits as hardly any advisers said the system acted as a deterrent.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected].IFAonline
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