Now we have further clarity on the next stage of the Government’s pension reforms, what does it mean for the industry?
The clarity about who is going to provide the at-retirement guidance, and who is going to pay for it, has not been universally welcomed. Adviser disquiet about picking up a substantial part (up to 30 per cent) of the cost of the proposed guidance service is understandable.
If the aim of the guidance service is to deliver a public good and to reduce reliance on the state in later life, an appropriate balance should be struck between state and industry funding. The regulator and Government should give serious thought to the funding issue and ensure advisers do not bear a disproportionate share of the costs.
Nevertheless, the service will come into effect from next April regardless and it is important for the industry to consider the potential opportunities arising from this.
Taken together with auto-enrolment, the new pension freedoms and at-retirement guidance offer the prospect of a whole raft of new consumers who might not currently be taking full financial advice being nudged towards doing so. It might be that some of these individuals don’t want a traditional advice service, which is why we need to work together to ensure we have the variety of investment choices, service propositions and charging options to suit their needs.
The prospect of online or telephone guidance as part of the new service is certainly a nudge for those of us looking at what we offer in this area. We believe that the guidance conversation should provide consumers with an impartial explanation about their retirement options but also point them towards regulated advice when appropriate.
Measures that provide freedom and choice for those saving for their retirement should be welcomed. These changes therefore represent a great opportunity to develop a stronger savings culture so that people have larger pots at retirement, resulting in a greater range of retirement income options in older age and easing the burden on the state.
We look forward to providers developing innovative retirement solutions for consumers to take advantage of the flexibilities introduced by the Government.
However, greater flexibility will create a greater need for proper financial advice at retirement. We need to ensure this is available to consumers and they do not simply rely on whatever guidance might be provided.
As a business, we need to have a clear customer proposition for possible handovers from those providing the at-retirement guidance so we can help advisers take advantage of this opportunity.
We need the technological capability that can support the management and processing of that transition; possibly at high volumes, which is scalable and consistent but always allowing for the needs of the specific individual, and what is suitable for them.
In addition, we must support advisers in achieving clarity and transparency around charging and how that relates to the service they will supply.
We expect the pension changes to accelerate flows onto platforms, as they allow advisers and their clients to spread wealth easily over multiple tax wrappers, offer flexible ways of retrieving income and a place to store and invest the money you have.
Platforms will need to provide advisers with a wide range of choices about how they make pension withdrawals for clients, to ensure income can be provided in the most tax efficient way possible, including the ability to choose whether to make a withdrawal from accumulated pension or drawdown pension pots.
Platforms can provide access to new investment propositions that are likely to be developed to meet the new demands from clients. But most importantly platforms can act as central hub for advisers, and their clients, to collate in one place a lifetime’s worth of savings.
This will be a vital first step in then providing the necessary financial advice about the best products or wrappers to use and how to then provide a tax efficient income in retirement.
David Thompson is managing director of Axa Elevate