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03

FAMR recommends early access to pensions to pay for advice

Open-access content Monday 14th March 2016 — updated 5.50pm, Wednesday 29th April 2020

The UK government should allow consumers to access a small part of their pension pot before the normal minimum pension age, to redeem against the cost of pre-retirement advice, Financial Advice Market Review (FAMR) has said.

2


This is one of the 28 proposals set out in a review, which addresses concerns about the affordability and accessibility of financial advice and guidance, published by the Treasury and the Financial Conduct Authority (FCA) today. 

It believed giving people a 'nudge' to seek advice well before the minimum pension age, currently 55, would leave individuals enough time to plan for, and if necessary set up their savings rate, ahead of retirement.

Malcolm McLean, senior consultant at Barnett Waddingham, said this was "probably worth a try". However, Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association, said this may not guarantee greater affordability and accessibility of the service.

Vidler said: "Even if savers are allowed to access their pension pots early to pay for advice, the cost of which still represents a big proportion of the average pension pot. 

"An alternative approach is needed to support the great majority of savers who will continue to be excluded from financial advice, particularly when it comes to making decisions about their retirement incomes."

FAMR also called for the government to consult on changes to legislation to narrow the definition of regulated advice so that it is based on a personal recommendation. 

It believed this would create a single definition for the service and remove some of the barriers that exist for firms wishing to offer guidance services.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: "It should allow firms more latitude to deliver useful guidance without having to charge an advisory fee or worry about inadvertently straying into giving personalised advice."

Technology can also play an increasing role in creating a "more engaging, cost-effective advice market", according to the report. It recommended that the FCA extend the work of Project Innovate and establish a unit to help firms develop their automated advice models.

McLean said: "Although this is unlikely to actually be advice as such it will allow consumers to go on-line, answer some questions, and receive financial help without having to pay for individually tailored solutions, all of which should be positive and will help consumers to better understand the issues and what their next steps should be."

In addition, the report recommended a number of measures for the FCA to take forward which are aimed at giving firms the confidence to deliver 'streamlined' advisory services focusing on specific consumer needs. 

But McPhail warned this could allow "poor practices" in the industry, adding: "We're less convinced about extending the development process for advisers and the notion of 'streamlined' advice. Where regulated advice is given it should adhere to high standards. 

"There is a risk that these proposals could undermine this extremely important principle and allow poor practices to creep back into the industry."

This article appeared in our March 2016 issue of The Actuary .
Click here to view this issue

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