The pension freedoms changed the face of retirement income options for members of defined contribution (DC) schemes. And one year on, there has been little innovation in the market in terms of new retirement products. However, many are expecting an influx of offers now that the market has had time to adapt.
Jonathan Watts-Lay, Director, WEALTH at work, a leading provider of financial education in the workplace, supported by guidance and advice, raises concerns over individual’s blindly purchasing retirement products, new or old, without really understanding what they’re buying and the implications of doing so.
He comments: “The new world of freedom and choice means that individuals must now think about their finances – not just in terms of their pensions, but all of their savings such as; ISAs, shares and any cash savings plus that of their partners. They then need to consider their tax status, health, longevity, property, and any possible inheritance etc. This demands a holistic approach to retirement, having a well thought out plan rather than simply purchasing a one off retirement product as a source of retirement income, which could have dangerous consequences if not carefully considered. But firstly to do this, employees need to understand what their retirement options are.
“Employers need to take action by making financial education a priority for employees so that they understand their options and the implications of their decisions in the lead up to, and at the point of retirement. Financial education can develop employee knowledge of the various retirement choices available.
“Once employees have received financial education, regulated advice is the next really important step in making the right retirement choices based on an individual’s unique personal circumstances.
“Regulated advice should be holistic; it should take into account an individual’s personal situation and that of any partner, and also all of their assets and savings – again, not simply their pension pot, but also ISAs, shares and so on. An Adviser can then give (based on an individual’s objectives) an appropriate recommendation about the choices they should make, ideally to be reviewed on an annual basis. Regulated advice also comes with the safety net of greater consumer protection.
“Our latest survey results* encouragingly show that 58% of employers surveyed provide financial education about the pension flexibilities at-retirement, and overall nearly half offered access to financial advice at the point of retirement. However, I believe that much more can be done and that all employers should make this provision available for their employees.
“Based on our experience, the ideal approach is to provide a full service for employees: the financial education, to help them understand the advantages and disadvantages of each retirement option, followed by regulated advice to provide individual support. Finally, employees should be able to implement their retirement plans, whether they decide to buy an annuity, go into drawdown or simply make cash withdrawals in a tax efficient way. This calls for a new breed of service provision. WEALTH at work is at the forefront of this – offering financial education in the workplace, supported by guidance and advice to make available all income options at-retirement – whether that is an annuity, drawdown, a cash withdrawal, or indeed a combination of options over time.”
*All statistics quoted are from the WEALTH at work: Pension Changes Survey – Our Survey Results 2015. This is available at www.wealthatwork.co.uk/corporate/2015/12/03/pension-changes-survey-our-results-2015/