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Help on the high street? Banks eye retirement advice gap
Financial advice could make a return to the high street as banks believe they can help retirees make the most of their money.
by Michelle McGagh on Feb 24, 2016 at 09:00
The pension freedom reforms have created an advice gap as individuals either feel they can’t afford, or don’t want to employ a financial adviser to help them navigate the retirement options that now face them.
Despite the government’s effort to encourage retirees to take advice through Pension Wise, just 8% of people who seized the chance to take control of their retirement savings contacted the free guidance service.
Of those who bought a drawdown policy to enable them to take an income from their retirement investments, 42% did not bother to take advice while only 37% who used their pension pot to buy a conventional annuity sought advice.
Many critics have argued the introduction of the retail distribution review (RDR) reforms in 2013, which banned the payment of commission to advisers and required them to have higher minimum qualifications, pushed the cost of advice beyond most people and made it the preserve of the wealthiest.
The City regulator, the Financial Conduct Authority (FCA), was already re-assessing how advice could work better for consumers through its Financial Advice Market Review launched last August. It has now turned its focus specifically to advice for older people.
In its latest discussion paper, Ageing population and financial services, it has asked banks, insurers and fund managers to solve the problem of a lack of advice for retirees.
Unsurprisingly, banks – which pulled advisers out of their branches in response to the tougher RDR regime – are eyeing a comeback.
Eric Leenders of the British Bankers’ Association said it was important to take a ‘fresh look’ at the gap in advice ‘from a view of enabling banks to re-enter the advice space’.
‘The pension reforms not only increase consumer need for investment advice but present a clear opportunity for greater consumer engagement by the industry,’ he said.
Leenders added that the BBA has said the latest advice review should prioritise ‘affordable regulated advice for investment and protection [life insurance], saving into a pension and taking income in retirement for mass market customers’.
Rather than shunning advice altogether, Keith Richards of professional adviser body The Personal Finance Society, said retirees would need more advice for longer.
He said there was a ‘growing need for advice in respect of cashflow management over increasingly longer periods in retirement during which the risk of running out of money has also increased’.
‘Retirees increasingly need help with striking the right balance between flexibility and security of income; taxation and greater understanding in respect of the provision and funding of health and social care,’ said Richards.
Yvonne Braun, director of long-term savings policy at the Association of British Insurers, said advice had not kept up with the pension changes. She said that while robo-advice – generic online advice models – played a part in helping retirees, it was not a panacea.
‘The existing framework for guidance and advice has arguably not kept pace with these major reforms,’ she said. ‘The Financial Advice Market Review provides a golden opportunity to re-think how to enable providers to give policyholders more support than is currently possible without overstepping the advice boundary.’
She added that there needed to be a ‘more ambitious approach’ from the government’s guidance services and called for people to be given help earlier in their lives.
‘Central government should signpost The Pensions Advisory Service (which runs Pension Wise) at age 50 for all citizens for a conversation about their pre-retirement finances, similar to the NHS’ ‘mid-life MOT’ of people’s health,’ said Braun.
‘This would enable a conversation about people’s financial preparedness for retirement at a point where they can still make a significant difference.’
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