“Avoid Sleepwalking into Retirement” is the title of a new White Paper published today by Standard Life, part of Phoenix Group, the UK’s largest long-term savings and pension provider, which makes recommendations as to how the industry, trustees and regulators can push for a system that addresses current barriers in both the lack of decision-making support and suitable income solutions offered to people when they come to access their pensions.
Most people don’t get help with their financial decision-making in the run-up to retirement. As the paper highlights, consumers feel confused and overwhelmed, and two fifths (41%) of retirees will be at high or medium risk of making poor decisions1. In large part, this is because regulations prevent pension providers from providing advice, which means a vast majority of people are left to make crucial decisions on their own. This problem is going to get worse as people live longer and become more dependent on the State, at a time when the working population is declining.
Although there is an advice market, it currently only serves a wealthy subset of the population. The FCA’s “investment pathways” were meant to solve the problem, but they don’t go far enough as they don’t help consumers make good choices about how they will use their money.
Savers need more support in navigating the at-retirement process to help them make the right decisions. To address these challenges, Standard Life calls on the Government to consider the following three key policy asks:
1. Allow us to help our customers better: we would like the FCA to follow through with plans to create new forms of advice, and targeted support to make it more accessible.
2. Provide retirement solutions by default: we want to see the DWP follow through with its proposal to create a legal duty on Trustees and pension providers to provide or signpost retirement solutions that are appropriate for their savers and find ways to use consumer data so that savers are presented with relevant options.
3. Encourage innovation in product design: establish a framework across Treasury, the FCA and DWP to encourage innovation to ensure that we can provide the best solutions available.
Recent consultations from the FCA and DWP have signposted a solution: pre-set retirement strategies, together with targeted support for people to make sure that they access the correct strategy. These guided defaults will be further enabled by the launch of Pensions Dashboards, which will help people see all their financial data in one place. Trustees have a crucial role in ensuring the best outcomes for members. Extending their remit alongside available data may permit more personalised defaults to be suggested to members.
Claire Altman, Managing Director Individual Retirement at Standard Life, commented: “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. 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.
“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.”
The full white paper - Avoid Sleepwalking into Retirement - can be viewed here.
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