Influential campaigner Baroness Greengross is preparing to lobby senior Government ministers over concerns that people with small pension pots will be unable to access independent financial advice after the RDR.
The issue relates to the role advisers play in helping customers to shop around for a retirement income.
Research from Partnership suggests less than half of annuitants who have shopped aro- und for a retirement product know what an annuity is and 75 per cent of those who choose an enhanced annuity do so because it is recommended by an adviser.
Last September, Partnership managing director of retirement Andrew Megson warned that the RDR will cause “significant consumer harm” as IFA numbers fall and fewer people with small pots will be able to access advice.
Money Marketing was invited to report exclusively last week on a House of Lords’ summit, chaired by Greengross, seeking to address the perceived advice gap that will be created as a result of the RDR.
Greengross (pictured), who is chief executive of thinktank the International Longevity Centre UK, will present industry concerns to Government members, including Cabinet Office minister Oliver Letwin, a key adviser to Prime Minister David Cameron.
She said: “As we move into a defined-contribution world, where decumulation decisions are made by individuals, more people are going to need financial advice. At the ILC, we are concerned that the RDR could lead to a reduction in the availability of advice. We need to ensure that people with small pension pots do not lose access to advice altogether.”
The ILC will produce a policy paper in March outlining reform options which the Government could pursue.
In an online poll conducted by moneymarketing.co.uk earlier this month, 88 per cent of respondents said the RDR will create an advice gap for people with small pension pots.
Partnership chief executive Steve Groves said any short-term solutions will need to be delivered within the current regulatory framework. He said Treasury ministers should consider reforming peoples’ default options at retirement in order to improve outcomes.
He said: “The Treasury should look at the retirement products people default into. For example, at the moment, somebody who is married and does not make an active decision will default into a single-life annuity rather than a joint life. But if you are married, a joint-life annuity is more likely to be suitable, so that is something that needs to be looked at.”
Outgoing Aifa director general Stephen Gay says spiralling regulatory and compliance costs will also hit adviser numbers.
He said: “People who take advice almost invariably end up utilising the open market option, which on average will lead to a 20 per cent increase in their annuity payment. “The reality is that advice is becoming less available and the RDR will make that situation worse.
“But this is not just about the RDR because there are all sorts of other costs that are borne by advisers. It concerns me that there is no one person or authority that has the job to look at that overall burden of cost on IFAs and say, at what point does the straw break the camel’s back?
“Nobody thinks it is their job to ascertain at what point the layering of costs which are supposed to protect the public actually has the effect of doing precisely the opposite by reducing advice capacity.”
Hargreaves Lansdown head of pensions research and Pica chairman Tom McPhail said developing a register of annuity brokers would help people to access non-advised shopping around services. He said: “We are looking at the idea of a register of annuity brokers. There are organisations that are already geared up to provide a shopping-around service without offering regulated advice, so that could be part of the answer.
“Nest’s model, where they have a panel of providers designed to ensure everyone can at least achieve a good outcome, is one that could potentially work for the wider market.”
For full details of the House of Lords’ summit, see Retirement Strategy, free with next week’s Money Marketing