Key outcomes of the retirement study
Our joint study with the Association of Independent Financial Advisers on income and wealth in retirement looked at the range of options available to consumers and the advice needed to help them make the most of their assets, both at and throughout retirement.
Methodology
A number of bespoke research initiatives were commissioned to ensure the study reflected up-to-date thinking on the major issues concerning participants. These included interviews and meetings with public policy practitioners and experts, regulators, legislators, product providers, consumer groups, trade organisations and advisory firms.
In addition, Ipsos MORI interviewed more than 1,000 consumers to find out where they would seek information about their retirement options or, if they had retired, where they had gone for information.
Summary of findings
The report focused on the following four areas, which you can download in full or read the key points by clicking on the links below.
The consumers' perspective
A key part of the research involved interviewing 1,205 people aged over 40 on their levels of knowledge and confidence in turning their pensions into income. Significantly, 40% of those within five years of full retirement ('pre-retirement') were found to be unaware of the financial decisions needed. This lack of consumer engagement was not restricted to decisions in the approach to, or during, retirement. Similar poor awareness existed in the accumulation stage among those building pension funds. More>
Amongst those interviewed, there was a growing distrust toward financial services, however IFAs were found to have the highest level of consumer trust by institution. Alongside this distrust, consumers were not always found to be rational in their financial decision making. Two types of individuals emerged from the research. 'Econs' who could rationally determine the mix of education and advice needed to improve their welfare, and 'humans', who expect advisers to suggest the best solution for their circumstances and needs.
The study found many complex areas where greater levels of consumer knowledge and awareness of their responsibilities is essential. These included pension contributions, fund choices and default funds, state pension entitlements, adequacy of retirement provisions, retirement age, product choices, health, and the role of property and equity release.
When it came to consumer sources of information, IFAs, banks, building societies and family came out top. Unexpectedly, employers played a larger role for the post- than pre-retirement group.
Download the full consumers' perspective section of the report.
The distribution landscape
At a time when there is clearly an increasing need for advice, there is a risk that the overall availability of advisers will decrease alongside the implementation of the Retail Distribution Review (RDR). Generally there is support across the industry for continuing to increase professional standards, and for the need to separate the cost of advice from the cost of products. However, there is a concern that the RDR proposals will reduce overall adviser numbers. More>
The Editorial Board responsible for overseeing this study was supportive of the Financial Service Authority's RDR objectives, but added some caveats. Aside from the threats to the overall capacity of the adviser market, other foreseen issues included: ensuring industry naming conventions and service offerings were clear to consumers, providing clear workplace guidance on company pensions as the number of people entering the decumulation market with these schemes increases. Alongside this was the need to increase numbers suitably qualified to advise holistically on decumulation products, including equity release and long-term care which sit outside the mainstream, whilst achieving the RDR QCA level 4 qualifications within the necessary timescales.
Download the full distribution landscape section of the report.
Industry response
The views of government and regulators, product providers, trade associations, consumer groups and advisory firms, were sought to ensure the study provided an overall perspective of the challenges and issues facing the decumulation market.
The general view across all groups was the disjointed approach to decumulation. There were a number of areas within the regulatory and legislative framework that the study suggested require specific attention. These included age 75 annuitisation rules, inconsistent taxation policies post-retirement and the consideration of retirement as a single period without changing needs. More>
Adequate government communications with individuals was found to be poor, with less than 10 percent of participants having used leading pension advice websites. There was also an onus on product providers to develop communications that better serve consumers in terms of both language and volume.
Developing a wider range of products and making these accessible to a wider audience was a common theme among participants. Consumer concerns focussed on product cost and durability. It was found that the majority of providers focussed on the accumulation of wealth. Innovative product solutions for the whole of market, with greater choices, flexibility and where possible, guarantees, were seen as attractive propositions.
Adviser firms that participated in the research also felt the need to enhance their services in the decumulation market, which is recognised as a strong growth sector. Firms felt constrained by the complexity of the market and maintaining adviser knowledge, as well as the shortage of qualified advisers, consumer attitudes toward advice and the cost of such services. A specific concern from some firms was that most product development focussed on the high-net worth market, but demand for advice was likely to expand into the mass and mass-affluent markets. Another worry was ability to provide ongoing advice to clients within the changing legislative and regulatory environment.
Ensuring that advisers are at the forefront of knowledge on products and the wider industry is a key challenge for firms. As a result of this study, AIFA is developing a series of good practice guides that will be available at joint Prudential seminars, starting late September.
The future
A core finding of the research was the need for a single market approach - where government, regulators and the financial services industry work together to address the needs of an ageing population. This includes providing access to relevant information, guidance and advice, and by developing flexible and suitable products that meet changing requirements and include the mass-market and mass-affluent sectors. More>
The development of streamlined, relevant legislation and regulation is imperative. The RDR is set to provide consumers with increased access to financial services, as well as clarity about the different types of services on offer, at a time where increasing numbers need such advice. Employers and unions will also become an increasingly important channel for engaging individuals in a trusted, objective environment, as DC scheme members grow.
The report shows that no matter how much information is available to consumers, they are not going to be educated unless they are engaged. The study calls for an ambitious review of all existing communications, and the gathering of specific consumer requirements. A co-ordinated, market-wide approach can then be devised, that utilises different channels of communication and ties in with accumulation education. As decumulation has been typically considered a separate market, there is also an education and training requirement for IFAs, to ensure those operating in this market remain at the forefront of its issues and opportunities.
Many of the actions listed in the report will take time to implement and to affect a suitable degree of change. They require a considerable amount of co-operation and communication between diverse parties. However the end goal is that of a consumer who is aware of their responsibilities and choices, to ensure they are appropriately prepared for a healthy and lengthy retirement.
See the summary of board recommendations as a result of the report findings.
