By Fiona Tait, Technical Director, Intelligent Pensions
Background
The joint regulatory strategy in relation to pension income was first published in October 2018 on the basis that it makes sense for the same rules to apply whether an individual is retiring from a workplace scheme, or their own personal plan.
The initial document starts by stating what most of us in the pensions sphere already know – that there is a great danger of people reaching retirement with inadequate income. It then identifies 4 key issues which must be addressed if the situation is to change:
• Access and participation
• Funding and investment
• Governance and administration, and
• Consumer understanding.
In other words, getting people to save, making sure their money works for them and is properly looked after, and helping people to make the right decisions regarding their retirement. The Consumer Journey work fits into the last category and aims to identify the most effective time to engage with them and provide the help they need.
The Consumer Journey
The regulators started by issuing a consultation paper which describes the retirement journey as falling into 5 key stages:
Most respondents to this paper supported this structure but the feedback statement clearly highlights that while the stages are broadly applicable to all savers, the patterns within them are highly individual to each person. People start saving at different times (although this is likely to become more consistent under Automatic Enrolment), they experience different career paths and diverse life events, and they are less likely to stop working on a single pre-determined date. So, when is the ideal time to engage, and is this common to everyone?
The Mid-life MOT
For every saver there is a crucial period when the main purpose of their pension changes from savings to spending. This is not when they actually start to take money from their pension, it is the period before that point – identified in the paper as ‘approaching retirement’. Including this stage allows people to consider their strategy and make changes before it is too late, and it is a logical point at which everyone should engage with some form of advice.
The government has been pushing the mid-life MOT agenda for a while, and tPR have issued a ‘toolkit’ for employers, ‘The Mid-Life MOT: Helping Employees to Navigate Mid Life’. Pilots run by Aviva, Legal & General and Mercers showed that an intervention at this stage undoubtedly helps people to be more prepared and less anxious about retirement, and the toolkit does its best to outline the benefit that employers might see as a result – reduced staff turnover, skill retention and increased productivity. Smaller employers and individuals can of course achieve a similar result by referring to or directly contacting a financial adviser.
The other 4 stages of the journey may then be usefully split into pre- and post-MOT.
Pre-MOT life
The first stage in the journey, starting to save, is when the most questions are likely to arise – when to start saving, how much to save, and what product/investments to save in. These are difficult questions for those with a non-financial background, but they do have the advantage of being pretty much the same for everyone.
Research shows that those who take advice do save more on average than those who don’t, however the communality of purpose should make it possible to deliver services that are based on relatively simple information, and which fall short of regulated advice.
Calculators and educational initiatives, such as the Money and Pensions Service (MaPS)’s young people Pathfinder programme and MoneyHelper already exist.
Feedback also emphasised that progress in this is being hampered, on the part of employers and providers, around the support they can deliver without straying over the boundary into regulated advice. Hopefully the regulators will take this on board – the end user doesn’t care if its advice or guidance, they just want help.
Post-MOT life
The questions change once people start to access their savings. Education and on-line tools are less useful at this time as they depend on people being able to make judgments and answer questions that are highly individual to them. Most people have very little idea of how much money they will need in 10 to 20 years’ time, and even less idea of how long they may need it for. This is where regulated financial advice can deliver considerable value - not least because people have more to lose at this stage.
There may certainly come a day when retirement cashflow planning is accessible to all but in the current environment it takes a professional to make reasoned assumptions and explain the key points in the output.
In summary, people deserve to have help and support throughout their retirement journey, however it can be delivered at different times and in different ways to suit their needs at each stage.
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