Zarah ChoudharyStandard Life has published a white paper recommending ways the industry, trustees, and regulators can address current barriers in decision-making support for people accessing their pensions.
The paper highlighted that most people do not receive help with financial decision-making before retirement, and that consumers often feel confused and overwhelmed, with two fifths (41%) of retirees at high or medium risk of making poor decisions.
Standard Life said this was largely because regulations prevent pension providers from offering advice, leaving most people to make decisions on their own.
The problem was expected to worsen as people live longer and become more dependent on the state, while the working population declines.
Though there is a market for financial advice, the firm argued that it currently serves only a wealthy subset of the population.
According to Standard Life, The Financial Conduct Authority’s (FCA) investment pathways were intended to address this issue, but do not help consumers make the right choices about how to use their money.
To address these challenges, Standard Life called on the Government to consider three key policy changes.
It asked the FCA to follow through with plans to create new forms of advice and targeted support, making them more accessible.
It also urged the Department for Work and Pensions (DWP) to advance its proposal to create a legal duty for trustees and pension providers to offer or signpost appropriate retirement solutions.
Standard Life further suggested establishing a framework between the Treasury, FCA, and DWP to encourage innovation in retirement solutions.
Recent consultations from the FCA and DWP indicated a potential solution: pre-set retirement strategies, supported by targeted assistance to ensure people choose the right strategy.
These guided defaults could be bolstered by the upcoming Pensions Dashboards, which will give individuals a clear view of all their financial data in one place.
Claire Altman, managing director of individual retirement at Standard Life, said: “The nature of retirement is changing and it’s now more important than ever that people receive support and guidance to and through retirement.
“While people like the freedom to access their pension at retirement, for many it will either feel like a burden due to the complexity of options, or a process where the chances of a bad outcome are too high.
“We want to make it easier for us to help our customers get the best outcomes in retirement, provide default retirement solutions that are available through guidance, and innovate so that solutions better suit our customers.”
Altman added: “A vast majority of savers would benefit from financial advice, both in the savings journey and at retirement.
“Making this more accessible by creating advice models that work for the market is key.
“We support Government and regulators in pressing on with plans for providing better help for people and making accessing retirement solutions more straightforward.
“An appropriate framework for trustees and providers will be necessary to encourage innovation in solutions that meet the needs of the majority, as well as solutions for those who don’t fit the mould of the average saver.
“The chances of securing better outcomes will also be enhanced if providers have access to information such as people’s state pension entitlement and if new rules around simplifying the advice process are enacted.”
Altman concluded: “With more people saving into a DC pension given the success of auto-enrolment, action needs to be taken now to ensure the right framework exists to support people as they move from saving to accessing their pension.
“We’d like to see a ‘retirement taskforce’ established—an expert working group created to explore these issues and bring about change in overall outcomes for consumers through effective retirement solutions.
“As with most things, there is no one silver bullet but a few key changes now will make a huge difference to the lives of many people as they age.”
