View more on these topics

Auto-enrolment ‘will increase risks of Budget reforms’

Unintended consequences of auto-enrolment will increase the risks of retirees making poor decisions when given the freedom to access their pension pots from April, according to Barclays.

A white paper published this week by Barclays’ behavioural finance and corporate and employer solutions teams says auto-enrolment discourages engagement as consumers feel decisions are being made for them.  

The paper says: “The biggest concern [of the pension reforms] is that people will not balance the spending now versus spending later trade-off, and spend their pensions too quickly.

“There is also the risk that too much choice could overload people and put them off finding a good solution. Given more options people are less likely to make a decision at all, let alone an informed decision.

“All these potential problems stem from the risk that, due to auto-enrolment, most employees will simply not be engaged enough with their retirement planning to make the sort of decisions required without assistance.”

The report also raises concerns about the effectiveness of the Government’s guidance guarantee service, as it argues the guidance needs to be personalised.

Guidance sessions will discuss the relevant options for retirees, but cannot give a personalised recommendation as this would stray into regulated advice.

Barclays head of behavioural finance Greg Davies says: “A lot of people’s reasons for taking retirement income a certain way are emotional. For instance, people place a large emotional premium on flexibility so are likely to choose drawdown over an annuity even where that is detrimental.

“Guidance needs to be personalised to get individuals to the right answer. If it only shows people the different options and their advantages and disadvantages, that will scare the living daylights out of them.”

The paper argues that only independent financial advice will give consumers the “tailored discussion” most will need to make the right decision.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm