As I sat down to write this column I had in mind to explore the potential oncoming car crash between those who interpret pension freedom as being able to spend their pots in any way they want and those who think pensions are a serious business and should be used as far as possible to provide a long-term income. However, in her excellent Money Marketing leader on 18 June – “Tough talk on pensions misses the value of advice” – editor Natalie Holt deals with the issue more eloquently than I can. So I will take a different tack.
From someone who has scars on his back as evidence the old system did not work and has an intuitive feel for what many people want from their pensions in the future, I think both sides of the pension divide may be pushing in the wrong direction.
It seems to me the Government wants to make it too easy to access pension pots, which, although a good idea in theory, opens a Pandora’s Box full of issues. However, it also seems the professionals make it harder because they have to keep on the right side of regulation, which has a habit of coming back to bite firms in unexpected ways.
It is time to ask how everybody involved with pensions can be smarter about making the new freedoms work.
Let’s start with individual clients. They can be smarter with their pensions in a number of ways but perhaps most importantly they need to recognise when it is in their best interest to take advice. The new freedoms put individual people in control of their pensions and they are free to make their own decisions. But without being patronising it is simply too difficult for most people to understand the key issues and make the right decisions. The people who have the most to gain are those who receive the advice, not the ones giving it.
The regulators can be smarter by recognising what most people actually want. They want customer protection, the highest standards of qualifications and to know they will get the best deal. However, they also want an advice process that is more customer friendly and designed to meet their needs. My personal view is that we do not have to compromise on the important parts of the advice process, such as explaining risks and ensuring suitability, but the whole process can be designed to be more customer friendly.
Finally, advisers can be a lot smarter by recognising the need for advice to the Middle Britain market and designing a service that meets the demand while complying with the burden of regulation. This is easier said than done: I understand why many advisers concentrate on higher net worth clients, as the economics of advising those with pension funds of under, say, £100,000 is challenging.
I conclude by urging the Government and the regulator to create the framework that allows individuals and advisers to be smarter about the way the pension freedoms are used. I think smart advice is a better phrase than simplified advice and is certainly better than no advice.
Billy Burrows is director at Retirement Intelligence