Do advisers think the industry will be ready in time to deal with incoming Budget flexibilities? Helen Morrissey finds out in the latest Retirement Planner Inquiry.
The coming six months are going to be a time of great change for financial advisers. From April 2015, retirees will be given unprecedented flexibilities when it comes to accessing their retirement savings.
We expect to see more people move into income drawdown, while those with smaller pension pots are likely to take them as a lump sum. The role of annuities is also likely to change markedly in the coming months with people choosing to annuitise later, or doing so in slices rather than in one go.
Those who have access to a financial adviser will really benefit from these changes. Regular financial check-ups will ensure they remain on the right track and don't prematurely deplete their funds for instance.
But what of those who, for whatever reason, do not access regulated financial advice? Will the proposed guidance guarantee be enough to keep them on the straight and narrow? Or will we see people making sub-optimal decisions that negatively affect their retirement incomes?
Many in the industry believe that the guidance guarantee will actually act as a conduit to the regulated advice market. By giving people basic information on their choices, it is hoped that many retirees will come to the conclusion that they need regulated advice on an ongoing basis.
When we asked our survey participants whether they too believed that the guidance guarantee would increase awareness of the need for financial advice throughout retirement, it seems they also hold this view.
More than two thirds (68%) of those who responded said they believed the guidance guarantee would raise awareness of the need for regulated financial advice throughout retirement, while 32% said they did not believe this would be the case.
However, one major challenge facing the advisory industry is how to service those with smaller pots in a cost-effective manner. When we asked what could be done to make this easier, we received many different responses.
Several highlighted the need for lighter touch regulation and a reduction in the amount of paperwork advisers had to do. Some called for amendments to the Retail Distribution Review (RDR) to make it easier for advisers to service this part of the population. One participant said: "By revising RDR to allow commission at a maximum level – i.e. say 3% – mass market just cannot afford upfront fees." Another called for the RDR to be reversed.
Others said the cost of advice needed to be subsidised in some way, with several recommending the use of vouchers that people could use to offset against the cost of advice. Some advisers highlighted the role of The Pensions Advisory Service and the Money Advice Service, with one participant saying it was their responsibility to signpost people towards regulated financial advice.
Another participant went further: "Cancel the whole 'guidance by unqualified quangocrats' farce and issue vouchers that can be used for advice by an IFA."
There have been many suggestions put forward to help people get the most from their guidance guarantee sessions.
One of the more popular ones is the use of a pensions passport – a document detailing the various pensions people have to enable those administering the guidance guarantee to get a better sense of the retiree's overall financial position. This means that in theory, the retiree gets more relevant guidance leading to better decisions.
However, we got a mixed response when we asked our survey participants whether they felt such a passport was needed. Just 42% of those who answered the question said we needed a pension passport, while 26% disagreed and around one in three (32%) were unsure.
Preparing for Budget freedoms
So it would seem that there is still some hesitation regarding the efficacy of the guidance guarantee. But this may partially be due to the fact that very few definitive decisions have been made regarding what the service will look like and how it is to be delivered.
The advent of the Budget freedoms are also likely to bring big changes for advisers as they help their clients to navigate an extended array of options. We asked survey participants whether they felt adequately prepared to offer advice in this way from next April.
It would seem this is a challenge the advisory industry feels fully prepared to take on, with almost eight in ten (79%) saying they felt adequately prepared to offer advice under the new regime. Only 16% of those who responded to the question said they did not feel adequately prepared, while a further 5% said they were unsure.
We then went on to ask those who felt unprepared whether there was anything they needed to help them. One participant asked for "better consultation and pre-warning by government rather than surprise political announcements", while another said they wanted "rules that were not constantly changing and an acceptance that retirement is like it or not a personal responsibility".
Several others said they would benefit from knowing more about the products the providers were likely to bring to market. As these come to market in the coming months, it is expected these advisers will get the reassurance that they need.
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