Guidance will have to replace advice for low earners

We are talking about a large swath of the population. In June 2017, the FCA published its baseline report, which suggested that between 42 million and 48 million people are unable to access or afford financial advice.

This means access and take-up of financial guidance for low earners is a critical challenge for government and industry.

Making it possible for UK pension schemes to deliver such guidance requires a framework to be developed that sets out the scope of services that can be delivered

The Institute for Fiscal Studies reinforced this point in its June 2018 report; “The ins and outs of retirement saving”.

It showed auto-enrolment had helped increase the number of private sector workers who save into a pension, from 50 per cent to 70 per cent.

While this is a great success, it masks the reality that many of these people have under-saved for a number of years. The contributions they are making under auto-enrolment will not meet the Department for Work and Pensions’ target of having people achieve two thirds of working income in retirement.

Pension schemes should therefore be getting behind key initiatives to help low earners engage with their money and build robust financial foundations needed for retirement.

Multiple dashboards is the answer

I would like to see the DWP make it easier for financial services companies to host pensions dashboards. This would enhance access to information about individual pensions for low earners, and also facilitate greater engagement and help for consumers to understand the expected combined value of their pension pots and income at retirement.

A Tax Incentivised Savings Association survey published in June 2018 showed a clear willingness from the industry to do this, with 71 per cent of respondents favouring multiple dashboards.

Pensions dashboards could signpost a number of related services, including financial guidance and advice.

In the case of guidance, there could be links to financial health checks such as a mid-life MOT. Access to checks like this could help people understand what a reasonable set of retirement income expectations might be and how their current savings compare.

This could be further enhanced by a set of ‘rules of thumb’ that help guide low earners on how much they should be considering saving and point towards appropriate actions.

Help schemes to provide good guidance

Given the potential number of users, it seems pragmatic that in addition to the services of the soon to be formed Single Financial Guidance Body, the financial services industry is also allowed to provide guidance services that permit a degree of personalisation, but without going so far as to making a recommendation.

Making it possible for UK pension schemes to deliver such guidance requires a framework to be developed that sets out the scope of services that can be delivered, the mechanisms for delivery (e.g. online, telephone), the qualifications of the people that might deliver such services and the ways that such services are controlled.

Tisa is currently working with a group of member firms to define such a framework, with the objective of sharing this with the FCA and engaging in a conversation on how to allow this within the regulations.

It would also help address a key limitation of robo-advice, where the provider cannot contact the customer to suggest they reconsider their options when products or services change, as that would be deemed as advice.

To be fully effective, pension schemes also need to take into consideration the needs of the different age groups and how to engage with them.

Those nearing retirement have very different requirements from those starting their saving journey, so different guidance propositions need to be aligned to those age groups.

If we can get guidance right, we will make a significant step-change to the financial resilience of the population.

Charles McCready is strategic policy director at Tisa