Getting it right: Retirement decision-making has never been harder

Rebecca Shahoud asks whether current advice and guidance provision is meeting people's needs when it comes to accessing retirement income

The biggest changes to retirement income in a generation were announced by Chancellor George Osborne in last year’s Budget speech.

The changes affect individuals with defined contribution (DC) pensions, allowing easier access to their pensions and effectively opening up the income drawdown market to those with smaller pots.

In the months that followed annuity providers, who had long held the lion’s share of the retirement income market, endured a torrid time with the market shrinking to a fraction of its former size.

However, while providers get to grips with the new pensions world increasing focus has been put on how consumers are reacting to their increased choice.

In the aftermath of the reforms many have looked to see how Pension Wise has fared.

It was hoped many would chose to access the Treasury-backed free guidance service for help when making retirement income decisions.

However, early reports indicate this has not been the case with research showing just one in ten savers have accessed the service so far.

The Financial Conduct Authority (FCA) said in July that Pension Wise was running at just 10% to 15% of its capacity, and there were reports of staff being moved into other departments.

That went against The Pensions Advisory Service chief executive Michelle Cracknell’s predictions that the “take-up rate will be very high, with over 75% of people taking the guidance.”

Pension Wise deputy director Jamey Johnson admits the service doesn’t work for everyone: “We see some customers coming to us with no level of knowledge at all, and need support to go and find stuff out before they come to us.”

He agrees they need to tailor their approach more towards the individual.

“At the moment the guidance is quite restrictive. We provide options, but that ‘one size fits all’ approach doesn’t work for everybody.

“So, we are doing a lot of work in our customer lab at the moment to make sure people get to the right outcome, so I envisage that our guidance sessions will change in format and in length.”

However, while savers are also able to access independent financial advice many retirees are shunning this idea, according to FCA pensions and investment manager Alex Roy.

“There is clearly some dissatisfaction in the idea that you have to get financial advice,” he says.

“Customers may have taken the very clear decision that they want their money. Then there is a challenge of how can you make sure that there is more advice available at affordable levels which is suitable for the clients’ needs.”

Roy continues saying the FCA has put in “a massive amount of work making sure people are pointed towards the services that have been set up by the Treasury, the risk warnings, to make sure we get the right communications out there.”

He added that education needs to take place much earlier in the pension journey. “If customers are coming to us when they are reaching retirement then it’s too late,” he says.

The need for more information

It can take several years before retirees really know whether they have made the right decision or not so as yet it is far too early to decide whether to applaud Osborne’s reforms, according to Association of British Insurers director-general Huw Evans.

“Someone that’s happy with a pension decision now might not necessarily be so in several years when the full consequences become apparent, he says.”

There have also been calls for the industry to gather more statistics to better understand customer behaviour and the decisions they have taken.

The Work and Pensions Committee also highlighted this issue in a report published on 19 October 2015 which said there is currently not enough information to allow people to make the right decisions. It believes this could “lead to the next major pensions mis-selling scandal.”

The committee has called for government to act swiftly to ensure savers are better informed.

Some of the improvements they have asked for include the provision of more anti-scam publicity, the reduction of jargon and to clarify the distinction between advice and guidance.

This is also an issue concerning many providers, according to First Actuarial director Peter Shelswell.

“Education is key,” he says. “The starting point is ‘engagement’. We tried so often as an industry to help people understand this, but they were so often not interested.

“So, we need to work really hard on engagement, and that’s about drilling down to what the key messages are to communicate to people.”

He adds: “It takes a while to think through what the key messages are.”


One major concern is the reported increase in scams targeted at retirees.

Scammers have been preying on the ignorance of members, attracting them with offers of investments in land and wine.

Barnett Waddingham senior consultant Malcolm McLean (pictured) says: “Not accessing the right information could lead to dangerous implications. The increase in fraud scams has stepped up quite significantly.

“The fraudsters are playing on people’s ignorance, usually by cold calling and in some instances even sending a courier round to collect signatures.

He adds: “This could only happen with the new system.”

It has been difficult to measure the amount of fraudulent activity since April, but scams have increased since then, with some reports suggesting up to £1bn has been lost to fraudsters.

Portal Financial managing director Jamie Smith-Thompson agrees that since April fraudsters have stepped up their game and are extorting immense amounts of money from customers: “I think scams are a bigger problem than any of the figures out there would have us believe. Many customers may not report the scams, because they may be embarrassed.”

He adds: “The big problem is that the industry as a whole assumes that their members are more financially aware than they in fact are. We need to combat this with education.”

The Work and Pensions Committee has asked the government to ‘urgently redouble its publicity efforts around pension scams’ and recommens that the FCA tighten its scam awareness and reporting requirements for regulated firms.

FCA director Chris Woolard suggested that his organisation could do more to supplement public campaigns by working with providers to combat scamming.

In its report, the committee recommend the FCA bring forward stronger rules and guidance for standardised language and transparency in pricing for pensions and associated advice. The report stated that ‘unnecessary complexity is as much an enemy of a smoothly-functioning market as a more obvious regulatory transgression.’

Pension freedom is still in its infancy, and while it is still far too early to judge whether it has been a success or not it is clear that better ways need to found to ensure those coming up to retirement are able to access appropriate guidance and advice.

Without this retirees will continue to be at risk of poor decision making and potential scams.

“We need people from the industry to come together, share knowledge and experience and try and come up with some good answers, because I don’t think we’ve got them at the moment,” says First Actuarial’s Shelswell.