Speaking at the Personal Investment Management and Financial Advice Association annual conference, the Treasury Select Committee chair Nicky Morgan has called for the introduction of default guidance before individuals are allowed to access their pensions.
This stance is supported by a recent poll* by WEALTH at work which found that 86% of respondents believe that employees should not be defaulted into a decumulation pathway at-retirement without financial guidance.
Jonathan Watts-Lay, Director, WEALTH at work, comments:
“We support guidance pathways at-retirement, so find the news that the Treasury Select Committee are on board with this approach extremely positive. As you can see from our poll, there is overwhelming support for this with the majority of participants against defaulting employees into decumulation pathways without financial guidance.”
He continues; “Defaulting individuals into something without a positive choice being made raises questions over if it is actually within the pension provider or the member’s best interest. Many will argue that it’s a win for the provider because they keep hold of the member’s assets but it may not be a great option for the member.
Not only this, there’s a danger that Freedom and Choice in pension will be destroyed if individuals don’t make active choices at-retirement. It also discourages shopping around, which again suggests the winners are the providers. Additionally, as many retirees will have more than one pension, if they all default based on individual pots rather than the collective value, the likely outcome for many will be sub-optimal and less income at-retirement.”
Watts-Lay adds: “Before any decisions are made at-retirement, individuals really need to understand what their options are and the generic advantages and disadvantages of these options. Providing financial guidance for members and employees at-retirement can help with this and will enable able them to make informed choices, including being able to decide if they need to further support such as regulated advice – and therefore lead to better outcomes.
Our experience is that following financial guidance, individuals emerge more confident, knowledgeable and more able to make informed decisions; it has been no surprise to see significant numbers changing their retirement plans, increasing pension contributions and seeking out regulated advice as a result.”