Pensions advice should be a help, not a barrier

the Government’s specially established advice service Pension Wise have been disappointing. There have also been a significant number of consumers taking full encashment or making high rates of cash withdrawals from their pension savings.

All this has significantly heightened fears regarding their ability to make proper informed choices.

The pension freedoms have introduced much greater flexibility for consumers in terms of how and when they can access their pension savings as they no longer need to buy an annuity, able to take their money from the age of 55.

However, the worry is that, such is their confusion, consumers disengage and select the easiest option – for example, withdrawing their pension savings as cash without considering the tax implications, and allowing themselves to be steered by firms to certain choices or products without pondering all the options.

Financial services provider Fidelity International propounds a different view.

Richard Parkin, head of pensions, said: “Our experience is that most of these customers are simply taking tax-free cash from their retirement savings. Technically this means they have gone into drawdown but it is not what many consider as income drawdown – that is investmentbased lifetime income.

“All that has happened is that a customer has taken a lump sum withdrawal. Perhaps we should be more concerned about the large proportion of people that have cashed in their entire pots and paid a load of tax.

“This also explains the increase in non-advised drawdown. Those taking tax-free cash do not consider that they are retiring and so see little need for retirement advice or even guidance.

“This may explain why so few people seem to be using Pension Wise. Who wants to have a 45-minute retirement planning discussion when they have already set their heart on that new kitchen?

“Obviously it would be great if people did have a retirement plan before they took any money from their pension.

“But that was not really part of the narrative. It is the people’s money and the story said that they should be trusted.”

Surely they should shop around though? Well, maybe not.

He went on: “Many accessing pensions will now be in charge-capped, independent governance committee or trustee-governed plans. They will often not be charged for accessing their funds and, if active members, they can generally continue receiving employer contributions.

“What, then, is to be gained from switching provider? Rather, there is a risk switching provider could lead to higher charges, loss of employer contribution and even death benefits.

“The retirement outcomes review is welcome but we need to recognise that the genie is well and truly out of the bottle. More importantly we need to remember it was the Government, not the pensions industry, that took the cork out. We can encourage people to make better choices and seek advice or guidance but until this is seen as a benefit and not a barrier we will be fighting a losing battle.” Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull.