HM Treasury and the Financial Conduct Authority have released a raft of recommendations in the bodies’ review of the financial advice market, but industry commentators have said “tighter and more ambitious timescales” are required to make the pensions dashboard a reality.
Affordability, accessibility and consumer redress headline the Financial Advice Market Review, released yesterday by the Treasury and the FCA.
Launched in August with the aim of making the UK’s financial advice market work better for consumers, the review has put forward a package of recommendations aimed at improving the affordability and accessibility of advice and guidance for consumers.
The coalition and an initial dashboard could be brought about in one to two years rather than three
Adrian Boulding, TISA
Many in the industry have warned of the risks of large numbers of savers cashing in swaths of their pension savings without any form of guidance or independent financial advice; two-thirds of the 2.8m defined contribution savers eligible to access pension freedoms are still investigating the new landscape, according to a recentreport from the Pensions and Lifetime Savings Association, ‘Pension Freedoms: No More Normal'.
But in the course of assessing their options, just one in 10 have made use of the government’s Pension Wise guidance service.
Clarification of what consumers can expect from advice and guidance will play a crucial role in supporting pension savers through complex financial decision-making, a key focus for the review’s recommendations on improving accessibility.
The review advocates that the FCA and the Pensions Regulator develop and promote a new factsheet to set out what help employers and trustees can provide on financial matters without being subject to regulation.
In addition, the Financial Advice Working Group should work with employers to develop and promote a guide to the top 10 ways to support employees’ financial health, alongside developing a task force to design and test rules of thumb and nudges to serve as reference points for consumers.
Running parallel to efforts aimed at accessibility, HM Treasury is planning to explore ways to improve the existing £150 income tax and national insurance exemption for employer-arranged advice on pensions, alongside options to allow consumers to access a small part of their pension pot before the normal minimum pension age, to redeem against the cost of pre-retirement advice.
Jamie Jenkins, head of pensions strategy at Standard Life, said a move to incentivise employers to facilitate employees taking financial advice “makes absolute sense”.
“[Currently it’s] an almost universally unused provision, many employers have had no awareness of it,” he said.
Jenkins said the launch of a task force to work on developing nudges and rules of thumb is an “exciting opportunity” for the pensions industry.
The rules of thumb could be as simple as signposting 12-15 per cent of earnings as an optimum savings target, but will help improve clarity for consumers.
Need for speed
The review has also provided a timeline for delivery of the industry’s ‘white whale’ – the pensions dashboard. Run and directed by the Treasury, a group of industry and consumer representatives will oversee and drive progress towards a 2019 dashboard launch.
Adrian Boulding, director at the Tax Incentivised Savings Association, said he was a firm believer in the dashboard’s role in driving better consumer outcomes but called for a “tighter and more ambitious” timescale for delivery of the project.
“It’s good to see the Treasury getting behind this,” he said. “But the coalition and an initial dashboard could be brought about in one to two years rather than three.”
The proliferation of technology in the advice market will go some way to reducing the time required from a human adviser, he added.
“We have a serious cost problem,” he said. “The cost of traditional advice is too high.”
Clear distinctions
Malcolm McLean, senior consultant at Barnett Waddingham, said the review had failed to take the industry any further in clarifying the difference between advice and guidance, a blurring of lines that continues to confuse consumers.
“We need to make [the distinction] a lot clearer than we have in the past,” he said.
The review has recommended that the Financial Advice Working Group publish a shortlist of potential new terms to describe 'guidance' and 'advice', with the final choice of words and approach to implementing them to be confirmed after market research and consumer testing.
McLean said: “The proof of the pudding will be in the eating; whether, in due course, the quality and take-up of guidance and advice improves significantly and consumers are in a better place as a result”.
