The big, blue Pension Awareness Campaign bus toured Britain last week, marking the annual Pension Awareness Day on 15 September, which tries to break down the barriers preventing people saving enough for retirement and from getting guidance or advice.
The Government has grappled with these barriers, which range from a lack of awareness and knowledge through to affordability, for some time and constantly devises measures to increase long-term savings, most recently the Lifetime Isa.
And following the introduction of pension freedoms the need for guidance and advice has never been greater. The big issue is how to deliver it to those who need it efficiently and cost-effectively, particularly where people cannot afford or see the value of advice.
In August, the Treasury followed up a recommendation in the Financial Advice Market Review in consulting on plans to allow people to use £500 tax-free from their defined contribution pension pot before age 55 to pay for retirement advice from April 2017. This is in addition to the increase in the existing tax exemption for employer arranged pensions advice from £150 to £500, also from April 2017. The Treasury says it is possible the tax exemption for employer arranged advice could be used in conjunction with the pensions advice allowance to give people access to up to £1,000 of tax advantaged financial advice.
But does this go far enough? Given the workplace is increasingly seen as key to reducing the retirement savings gap, do we need a “safe harbour” environment so employers do not fear the repercussions of providing or facilitating retirement advice to their employees?
Industry commentators agree anything that helps people make the right decisions for their retirement is a positive step. But there are concerns about the limitations of the pension advice allowance.
Momentum Pensions director and head of sales Paul Forman points out that the allowance will buy people only a limited amount of advice. Given the complexity of defined contributions and the work involved it may not be worthwhile from an adviser’s perspective. However, he hopes some will embrace it. He says: “You might find some advisers look at it as a £500 loss leader, with the opportunity to provide wider services.”
On the other side of the coin, Intelligent Pensions marketing director and head of pathways Andrew Pennie questions whether a one-off advice session before age 55 is actually of particular use to most workers.
He says: “The pension advice allowance is available only up to age 55. If people are not going to retire until they’re 65, their circumstances are likely to change over the next 10 years and they would need more advice.
“Guidance alone is not working and in many cases has delivered poor outcomes. Not everyone needs advice but we need to enable those that do to find it more easily.”
Pennie thinks the pensions advice allowance needs to work in harmony with the tax exemption for employer-arranged advice, with employers and large pension schemes well placed to deliver and facilitate regulated advice to individuals.
“The barriers to advice are trust, affordability and accessibility. Employers can knock down the walls of all three: trust is going to be higher, they have the scale and resources to make it affordable and they can encourage employees to access it.”
He adds that employers do not need to pay for the advice, they can facilitate it using their scale and resources and provide better terms than the individual could obtain themselves.
However, some employers – particularly smaller firms – are reluctant to get involved in anything that touches on regulated advice as they are scared of employees pointing the finger if anything goes wrong. Confusion around the boundaries between guidance that sets out people’s options and regulated advice recommending what they should do does not help the situation. With this in mind, some in the industry believe a safe harbour environment could help employers to help their employees.
Sanlam UK head of employee benefits Elliott Silk likes the idea of a safe harbour but feels, in reality, it would be fraught with difficulty.
“If you look at the big employee benefits consultants, very few do employee engagement at all. They give advice to the employers not the employee. You don’t need to be regulated to give advice to an employer but you do need to be regulated to advise employees,” he says.
Silk sees this as a stumbling block as many employers cannot simply endorse the advisers they already know and trust, having put them through due diligence, as these advisers may not be authorised to advise individuals.
Some firms with corporate clients are authorised to advise employees but advice given is provided on an individual basis through an individual client agreement with the employee, so the employer plays no part in that. This is one reason some say there is no need for a safe harbour environment at all.
Broadstone corporate benefits director Brett Smith says that if something goes wrong with third-party advice suggested by an employer, the only potential impact on the employer is to their reputation in suggesting the adviser. He can see a case for a safe harbour environment where employers make unilateral decisions about pension scheme default funds, for example, but he has no sympathy for employers who cross the line in to the area of regulated advice when they are not authorised to provide it.
“If employers are thinking of straying over the line into advice I don’t think they should have a safe harbour,” he says.
Royal London pension business development manager Jamie Clark agrees. He says: “If advice from an employer goes wrong and the employer cannot be held liable, where can the worker go for compensation? If there is no regulator or fall back compensation scheme, there is the potential for expensive, protracted litigation.
“The difficulties lie in the complexity of financial advice. To protect consumers properly, strict boundaries would have to be established as to how far employers could go and this would have to be policed and paid for.”
Some commentators advocate other ways for employers to help employees understand the importance of saving for their retirement without getting involved in the provision of regulated advice.
Portafina head of marketing Bob Stark suggests employers that want to provide something in-depth without paying for their employees to receive regulated advice could offer a form of guidance as a company benefit along similar lines to the helplines offered under healthcare packages.
He also thinks employers could help encouarge long-term savings with incentives such as contribution matching, offering preferential rates on financial products and having a company policy that encourages saving – for example, by offering a pay rise with a percentage going into the employee’s pension.
Smith believes the workplace can provide a natural touch point for employees to receive prompts about reviewing their financial circumstances at life events such as getting married and having children.
“A lot of this work isn’t advice, its helping people to understand, so they can make better choices and fund their future retirement,” he says.