Quantum Advisory's Phil Farrell argues that apathetic members are unlikely to reach the retirement they desire, even with the help of regulated financial advice.
This lack of clarity and the effort required to confront potentially unpalatable truths inevitably lead to apathy and a less-than-optimal outcome.
Does delegation of retirement to better-qualified advisers solve this problem? Should we simply be told what to do and when to do it? The answer is no.
Financial advice cannot guarantee a positive retirement outcome in isolation
The saver apathy that prevented millions from joining their employer’s pension scheme is working as a force for good under the automatic enrolment regime, but we should not rely on inertia.
Advice needs members to listen
It needs to be built upon in a way that makes the attainment of a good retirement outcome the result of proactive and engaged input from all stakeholders.
Employees, employers, trustees and advisers have to work together in a coordinated and focused way to ensure that the journey to and beyond retirement is as successful as possible.
Advice only delivers its maximum benefit if the recipient understands why, how and when they should take the course of action which has been advised.
If a member fails to grasp fundamentals of retirement planning such as contribution adequacy, investment risk and reward, tax efficiencies and retirement options, then they will never truly appreciate the advice they receive. As a consequence, any positive decision made might not be followed for long.
Education boosts engagement
Whether we take advice or not, we must therefore shift our mindset from one that focuses on the present to one that takes a more considered, long-term view.
This will be a tough nut to crack. We live in a world in which we are bombarded with clever and aggressive marketing and must attempt to balance considerable financial commitments such as mortgages and the cost of raising a family.
The first step would be to ingrain good financial management into our cultural behaviours. Personal financial management should be embedded in the national curriculum.
By instilling good financial discipline we will lay sound foundations on which to build a system that delivers meaningful opportunities to individuals.
If they better understand these opportunities they are more likely to seize them throughout their working life.
Employers and pension scheme trustees also bear responsibility for effective communication and the ongoing education of members.
Methods of engagement employed should always reflect the specifics of the scheme and the makeup of the membership, to ensure that the messages ‘flick the switch’ of the target audience.
When advice matters most
Financial advice, while useful at all stages, is most likely to deliver value when the member nears the end of their working life or is considering options like transfers.
The tricky bit is defining when this part of the member’s journey begins, as for some it will be 10 years from retirement and for others it will be far less.
At this stage, it will be much easier for an individual to understand and act upon the advice if they have benefited from the engagement and education drive mentioned earlier.
Financial advice cannot guarantee a positive retirement outcome in isolation, and the industry must attempt to engage members to enable it to work.
Phil Farrell is a partner at Quantum Advisory
