As we move towards the implementation stage of the retail distribution review, political attention should turn to address the fallout of the FSA’s plans in terms of consumer access to advice.
In two key areas – the regular savings market and annuity advice for small pension pots – the changes being introduced by the regulator are likely to exasperate consumer engagement problems which already exist.
Last week, Money Marketing was invited to take part in a House of Lords’ summit which was investigating ways of addressing the perceived advice gap that will be increased for individuals with small pension pots.
The talks were led by Baroness Greengross, who is chief executive of the International Longevity Centre thinktank, and included Aifa director general Stephen Gay, Sesame chairman Ivan Martin and Partnership chief executive Steve Groves. A policy paper is due in March.
Although the sums at stake may appear small to some, getting the correct advice on your annuity options can make a significant difference to retirement income for an individual or couple. Gay highlighted that those who exercised the open market option, increased their annuity income on average by 20 per cent.
If more people with small pots are excluded from full independent advice due to cost, then the focus must be on ensuring they make sensible decisions that take account of their needs.
The ABI’s open market option work is moving slowly in the right direction and the work of the Pension Income Choice Association is to be welcomed but there needs to be more thought on what the Government, regulators and the industry should be doing to help people with small pots maximise their retirement income. This should explore the role of the Money Advice Service, technology offerings, simplified advice and IFAs who think they may have a cost-effective solution to operate in this area.
Throughout the progress of the RDR, the regulatory focus has been on changing industry process and behaviour without enough consideration to the unintended consequences for consumers who are already failing to engage with financial services. This is a natural consequence of the priorities the FSA has assigned to it by the Government.
We hope the work of Baroness Greengross and the various advisers and industry experts who will be supporting her will focus the minds of policymakers and provide some sensible proposals for reform.