The Government’s £30,000 mandatory advice limit for safeguarded benefits has resulted in a “market failure” according to The Pensions Advisory Service chief executive Michelle Cracknell.
In the wake of the pension freedoms, the Government required consumers to take advice when transferring out of a policy with safeguarded benefits, including defined benefits and guaranteed annuity rates, if the value of the pot is £30,000 or more.
Speaking at a Money Marketing Wired live debate yesterday, Cracknell said that advisers were often not willing to take on these lower value clients, leaving them without the help they may need.
She said: “One thing we are dealing with here is a market failure. In certain instances, you need to get regulated advice if the pot is over £30,000. If I got a pound for every customer who has come to me and said I can’t find an IFA who is prepared to give that advice, I would have a great pension.
“We have got a market failure that does need to get resolved in modest sized pots over £30,000 but below a level which – if you are doing all of those pieces of work and convert the fee into a proportion of the pension fund – will still look expensive.”
Cracknell called on guidance services to work with advisers on ways to bridge this gap.
“Making sure those people at least get public service guidance is really important. From that we need to work closer together from the advice sector to say is there any way where we can service people with pots above £30,000, maybe below £100,000, in a more economical way that we are at the moment?”
Cracknell said advisers had a valuable role to play, however, particularly when it came to making sure consumers’ drawdown schedules were sustainable.
“A lot of our customers who indicate they want to go down the drawdown route don’t actually realise the money is going to be invested. Then you think about the complexity of the investment in drawdown and when you are accessing money, what time you access the money obviously makes a huge amount of difference if you are accessing it at a point when the market is low.
“The real concern is when you first access your money, five years into retirement your priorities will have changed significantly and, if you don’t have an adviser, who is actually going to say this is no longer for me and I want some more certainty?”
Bringing advisers on board
Cracknell said while some people had seen advisers as a block to accessing their pensions since the freedoms, she was optimistic overall on the reforms.
“We had so many calls about people either fed up because they had to go through and pay for some regulated advice and they didn’t realise they had to and calls from people saying ‘my company didn’t allow me to withdraw my money in a way that I want to.’
“The perception was it was going to be as easy as dipping into a bank account and it is absolutely not as easy as that.
“At the moment we have got a long journey to take people from being recipients of pensions which they have been to date to actually being consumers of pensions.
“The success has been the number of people talking about pensions. That’s fantastic and a really good starting point. The focus at the moment is how to take the money out, but at least they are talking about pensions.”
Also speaking at the debate, Cervello Financial Planning director Chris Daems said “true financial planning” was becoming more prominent since the freedoms.
He says: “One of the benefits of seeing an adviser is we are now seeing cashflow come to the fore a lot more because we can plan for that lump sum and longevity…What we are seeing now is true financial planning come to the fore as opposed to being based around products which is great news for financial planners.”
Watch the full debate, which also features Tisa’s Adrian Boulding and Metlife’s Simon Massey on demand above.