30th May 2014
As the government puts an emphasis on getting advice on retirement options, a third of people aged 55 or over still say they would not value financial advice when retiring.
Chancellor George Osborne used the Budget to introduce a legal right for everyone retiring with a defined contribution (DC) pension – which the majority of workplace pension scheme are these days – to receive ‘free, impartial, face-to-face advice’.
This has known as the ‘guidance guarantee’ and although retirees won’t be offered full advice, they will receive some ‘guidance’, which is expected to centre around how long they could live in retirement for and what the options open to them are. Details about the exact nature of the guidance have not been confirmed yet.
However, despite the introduction of guidance, research by insurer MGM Advantage shows a third of those nearing retirement aged 55 or over would not value financial advice when retiring and 36% have no idea what an independent financial adviser (IFA).
A total of 44% of people this age said they do not need an IFA.
Andrew Tully, pensions technical director at MGM Advantage, warned that the lack of understanding and attachment of value to advice could lead people to shun the guidance offer.
‘The guidance guarantee is a crucial piece of the Budget jigsaw. Just as your choices at retirement increase, so those decisions become more complex,’ he said.
‘Given the need for proper financial advice is even more important after the Budget proposals, it is extremely concerning that so many people do not value it and believe they are able to make decisions about how to best finance their retirement by themselves. If people do not seek expert help when considering their options for retirement, we could see many people making poor choices, such as paying too much tax, or investing in poor value solutions.’
The predicted problems around the take-up of guidance are compounded by 41% of people aged 55 or over being unaware of the retirement options available to them. This figure rises to 45% for those with household income of under £30,000 and to 48% for women aged 55-plus.
Tully said that soft prompts to take up the guidance offer should be introduced to mimic the prompts to save introduced by auto-enrolment.
‘Perhaps similar prompts to use the guidance service should be considered, to ensure most people have a basic level of understanding of the myriad of options which are likely to become available before making any decisions. ‘