Pensions Freedoms Furore Masks Growing Advice Gap

Published: 12 June 2015

Could pension freedoms initial problems raise bigger questions about financial advice?

Worried about accusations of misselling, many firms are refusing to deal with customers until they’ve spoken with an adviser. Unfortunately, many people are unwilling or unable to pay for financial advice, and the number of qualified advisers is dwindling.

According to press reports this week, millions of people are struggling to take full advantage of the pensions freedoms introduced to great fanfare at the beginning of the tax year.

The Daily Telegraph reports that despite early promises, Friends Life customers are experiencing a distinct rigidity in the new retirement ‘flexibilities’, with savers limited to just three options and the potential of a hefty tax bill. Elsewhere, the Daily Mail claims that the whole ‘pensions freedom’ system is in meltdown, with people experiencing lengthy delays, high charges and misinformation.

So why might this be happening and what are the key issues?

Firstly, providers are under no legal obligation to provide the full range of pensions freedoms. In the run up to the change, a number of providers had said that they may be unprepared or unwilling to offer fully flexible access immediately. Secondly, many providers have simply not had enough time to deliver the promised freedoms. Many are linked to administrative problems, but critics claim that the changes were pushed through too quickly with little or no industry consultation and guidance on how the process should work in practice.

Which leads neatly to the third and perhaps most important reason – the growing advice gap. Providers are worried about what may happen to them if they let customers withdraw all their cash without some form or guidance. Worried about accusations of misselling, many firms are refusing to deal with customers until they’ve spoken with an adviser. Unfortunately, many people are unwilling or unable to pay for financial advice, and the number of qualified advisers is dwindling.

Independent retirement expert Billy Burrows says: “As soon as the new pensions were announced I saw that there would be a number of expectations that would be hard to satisfy. First many clients would want to take cash or high levels of income from drawdown against the advice of the professional advisers. Secondly, pension companies would have little incentive to introduce many of the new options and thirdly the advice gap would continue to be a politically hot potato.”

As Billy comments, early administrative and process problems are dominating pensions freedoms headlines. But these could be dwarfed by the problems caused by the ever increasing advice gap.

Simon Maule

Director 

More from linstock

Pension freedoms have introduced an urgent need for providers to be talking to customers about retirement much earlier. But what to communicate?

The pensions freedoms consultation has now closed. However, there is still some doubt over how this will impact on financial decision-making in retirement.

Simon splits his time between our offices in Leeds and London. He formerly ran the UK corporate comms practice at Gavin Anderson & Company.

Linstock began working with retirement income provider Canada Life (formerly Retirement Advantage, and prior to that MGM Advantage) in 2014 – the year that pensions and retirement underwent its biggest change in a generation.

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