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Experts warn of pensions ‘car crash’ next year from low guidance take-up

Experts are warning next year’s reforms to pension freedoms could be a “car crash” unless take-up of pensions guidance is much higher.

Earlier today Money Marketing revealed Legal & General’s pilot of pensions guidance, in conjunction with The Pensions Advisory Service and LEBC, has seen take-up of just 2.5 per cent.

Writing to 9,000 customers between April and May, the pilot saw just 225 retirees take up the offer of guidance. Experts say the unwillingness of savers to engage with the guidance presents a significant policy challenge to the Treasury.

Partnership head of corporate affairs Jim Boyd says: “These figures must be a significant matter of concern for the Government and the industry. It is still early days and there is a lot more room to generate awareness and support for greater engagement and Partnership will be working with the industry as hard as we can to ensure there is significant and much higher take-up.”

Just Retirement group external affairs and consumer insight director Stephen Lowe says: “There are very significant risks that people will get a worse outcome than in the pre-Budget environment because more choice creates more inertia. The Government policy response is guaranteed guidance. 

“If there is no guaranteed guidance taken then surely that equals greater risk with no antidote. That’s why the FCA must put in place a plug – to block the massive gap created in policy and to protect people from defaulting without help.”

Hargreaves Lansdown head of pensions research Tom McPhail says more engagement, media campaigns and advertising will have a big impact on take-up before next April.

He adds: “Even if we see better take-up than L&G, there will be a very substantial proportion and possibly a majority who won’t take guidance. There is a critical task for regulators, especially the FCA, to have robust regulation in place to protect propel buying retirement income solutions without having received guidance or advice. This has the car crash potential to make the Blues Brothers look like a health and safety video.”

At the Labour party conference last month, Work and pensions select committee chair Dame Anne Begg said if take-up was as low as 10 per cent or 20 per cent the Government should consider making it compulsory.

Speaking to Money Marketing following the publication of the L&G findings, Begg says: “We need a campaign to tell people what is on offer from guidance and if they still need advice as well. We need to persuade people this is something they need to do. I would hope take-up is close to 100 per cent because most people need to be directed in some way.”

Fidelity retirement director Alan Higham adds: “Without any changes to provider communication it simply leaves all the same problems the FCA found in its annuities review on engagement.

“There are potential for more and worse problems in the new pensions freedom environment. I am concerned the way this is being implemented is not going to lead to good outcomes for consumers.”

The Treasury was unavailable for comment.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. What is clear is that clients require proper face to face advice and the fact is that the present proposal for guidance does not give proper regulated advice which needs to be paid for.

    Many providers who have vested interest in the status quo are using the potential low take up of guidance as a lobbying technique to get the government to change their minds and prevent savers from having access to THEIR savings.

    Many of these insurance companies have been living off billions of pounds of assets and in some cases doing little work to benefit the savers. These companies should now start looking at how it can benefit consumers rather than trying to scare consumers.

  2. Are we really surprised by these results from the L&G survey? There are constant adverts in the press asking if people have been mis-sold pensions and investments by their adviser, and even the Chief of MAS recently suggested advisers are somehow not to be trusted. Consumer confidence in qualified professional advisers is taking a battering but yet in areas of retirement, it is vital individuals get advice specific to their own needs and goals from qualified individuals as informed decisions need to be made and the ‘one guide for all’ doesn’t work. Would it not be sensible to have some kind of declaration that needs to be signed by someone to say guidance/advice has been given before benefits can be taken?

  3. “They wrote to 9000 customers”. What did they expect from a mailshot? That is par for the course. Advisers contacting warm clients by letter, email and follow up will have a higher take up, but advisers need to cover their costs.

  4. “We need a campaign to tell people what is on offer from guidance and if they still need advice as well. We need to persuade people this is something they need to do. I would hope take-up is close to 100 per cent because most people need to be directed in some way.”

    There you go then!

    Sounds like another MAS style advertising campaign in which case my estimated cost of £50 million a year for the guidance guarantee is going to be a woeful underestimate.

    Come on fellow IFAs get your cheque books ready!!!

  5. What is very noticeable from the article is that all the comments are from providers that have the most to lose from these changes. All sensible advisers know that the guidance regime will be an unprecedented failure so what is the point in worrying about the take up.
    Do they not understand the difficulty that experienced regulated advisers are having in trying to absorb all the changes to enable them to advise their clients correctly. If we are having difficulty what chance will the unregulated guidance providers have after just a 10 min telephone conversation with the individual. Any adviser will tell you that the average time taken from start to finish for this type of advice is around 20 hours..

  6. MAS is run by CRookes!

    That about says it all really.

  7. I love the fact that the Labour Party would make it compulsory. What are they going to do with those that don’t want guidance? Throw them in jail? Fine them? Great thinkers.

    Alternatively there could be a small percentage charge made on the drawdown or annuity contract to pay for qualified, regulated advice. Then those that benefit from the service would be paying for it. All we need is a name for it – Wow! Why has no-one thought of this before???!

  8. Tom McPhail’s comments in the article imply that those who don’t take guidance or advice are heading for a car crash. Is it me or is that a bit rich from a direct to consumer company built on not providing advice?

  9. Dr D ~ The worry is that we’ll be forced to pay to set it all up and, if the take-up is significantly below unresearched expectation, our money won’t be refunded, it’ll just be used for other things. And I’ll bet we hear precious little more about the £20m that the government said it would set aside.

    Nobody seems to have thought to commission a poll to find out just how many people are likely to avail themselves of any new GG service as opposed simply to consulting an authorised intermediary on the basis that their first meeting will be free of either cost or obligation ~ which is where guidance without advice is likely to lead the vast majority of prospective retirees anyway. Had the FSA/FCA mandated OM as the default option, all this could have been avoided without yet more of OPM being wasted.

  10. Rebecca Hill has hit the nail on the head !

    With all the bad press we and the industry gets from, FCA, MAS, Press as well as CIC cold calling etc etc etc no wonder !!

    I don’t want to make this about RDR, but what was the point ? I though this was the catalyst for revolutionising our industry !

    Why do this then rubbish us at every opportunity ?

  11. The whole thing is a shambles. They could have got a far better result by issuing a voucher to seek “guidance” from an adviser should that adviser wish to do this. After the guidance it is likely, that for some, full advice is needed and it would be the client who decides whether to use the same adviser or look elsewhere. Form a guidance point of view as long as it was no more than half an hour a £100 voucher should be enough to cover the time as there would be no compliance/FCA responsibilities for this.

    However that is probably far too simple for those in authority to think about. The government has spent Billions trying to prop up lots of different parts of the economy, why not give something to the advisory community if they want it?

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