Technology is helping to address concerns that the RDR reforms will leave pension savers with small pots without professional advice and support at retirement, according to The Open Market Annuity Service (Tomas).
A recent report from the International Longevity Centre (ILC) highlighted concerns that the RDR will create an "advice gap" for many of those retiring with small pension pots.
Tomas sales & marketing director Graeme Riddoch said the report painted a worst-case scenario and that professional financial advice will continue to be in demand provided advisers have put in place modern, streamlined systems that allow efficient administration of smaller pension pots.
“The annuity market is growing and developments such as the ABI’s new mandatory code should encourage many more pension savers to shop around,” he said. “Demand for help and support from pension savers with smaller than average pots could rocket and advisers remain well placed to help them make good decisions.
“Our system and similar technology being developed elsewhere is already helping to strip out the costs of fact-finding and researching the market, making it possible to advise on small pots profitably. There is every possibility that many more people will get the help and support they need post-RDR than they do now.”
A report by the National Association of Pension Funds and Pensions Institute estimated the cost of sub-optimal annuity choices could be between £500m and £1bn in terms of lifetime income lost by a cohort of retirees in a given year.
“Those figures aren’t surprising in a market where historically two-thirds of buyers have accepted the first offer,” said Riddoch. “The RDR may push up some advice costs but technology will help balance it out by reducing the costs of doing the legwork.
One obvious example is how systems can now reduce the burden on advisers needing to screen clients for health and lifestyle issues that could give enhanced rates. Advisers do not always feel qualified or comfortable asking such personal questions so when that important task is handed to a trained third-party it can reduce advice costs and lead to better outcomes for the client.
The ILC report raised the spectre of ‘"dvice apartheid" leaving retirees with small pots stranded knowing they ought to shop around but not knowing how. Our view is more positive with technology giving advisers the opportunity to create tailored services targeted at helping those with modest pension pots while also using the same system to support the more complex recommendations they make to wealthier clients.”
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