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Implications of financial Advice Markets Review

Significant growth in workplace guidance expected post FAMR review.

The leading pensions and benefits consultancy, expects to see significant growth in the number of employers providing long-term savings guidance to employees as a result of the Financial Advice Markets Review (FAMR). Commenting, Rona Train, Partner at Hymans Robertson, said:  It’s reassuring that the FAMR has recognised the importance of the workplace as a place for people to access financial guidance. Employers and employees agree that it’s a first port of call and one of the most trusted for many. 

“Our research has shown that 71 percent of employees think employers should provide more support around the complicated decisions they now need to make with their long-term savings post freedom and choice. 80 percent of employers believe employees expect it. Not only that, many believe their staff will hold them responsible if they don’t support them and they make poor decisions as a result.” Discussing the removal of a significant barrier to employers providing more support, Train added: “The FAMR’s recommendation that Treasury narrows the definition of regulated advice removes a significant barrier that has often stood in the way of employers providing this much needed guidance. Many that we work with, while keen to do more to support their staff, have been afraid of straying into regulated advice territory. 

“Both employers and Trustees will welcome guidance from the FCA and tPR around what help they can provide without being subject to regulation. As a result, we expect to see a significant uplift in the support provided to individuals in the workplace. Calling for an increase in the £150 income tax and National Insurance exemption for employer-arranged advice on pensions, she added: “Clearly there will be instances when employees need advice rather than guidance. We agree that HMT should look to extend the existing £150 income tax and National Insurance exemption for employer-arranged advice on pensions. In our view this needs to be closer to £1000 for it to be meaningful. 

“An area where employees are required to take advice is around transfers out of Defined Benefit (DB) schemes and into Defined Contribution (DC) to take advantage of pension flexibilities. Employers providing DB schemes and the trustees overseeing them must ensure members have good support to make choices that are right for them. If employees give up their DB benefits for the wrong reasons and feel the consequences in later life, there is a risk this could come back to bite their former employer. But providing good advice is costly. Increasing the tax exemption to help pay for good advice is one way to help. Another is to use technology to help manage the costs, by engaging with DB scheme members, filtering out those that are unlikely to do anything and only targeting those who may benefit from a transfer.” 

Discussing the role of technology, Train concluded: Fortunately employers can provide support to their workforces cost effectively due to significant advances in technology. The review has highlighted the increasing role that technology can play in creating a more engaging, cost-effective advice market. In particular it highlights that it can be difficult for consumers to access data on their own savings to support planning. This can lead to a lack of consumer engagement. The right technology solutions can have a huge impact on engagement, particularly in the area of pensions. 

“For example, 10 percent of the 2,500 members of Scottish Power’s Stakeholder Pension Plan immediately started saving more into their pension when they started using our Guided Outcomes™ (GO™) technology, which helps Defined Contribution (DC) pension savers meet retirement income goals by setting an income target and helping savers make decisions to get on track to meet it. “Technology such as this is encouraging people to increase contributions to their long-term savings, but almost as importantly it is helping them understand where they are at the moment and, even if they won’t do anything immediately, they are in a better informed position – which is essentially one of the underlying purposes of this review. Technology has a big role to play, enabling employers to introduce solutions that can help close the advice gap and have a positive impact on savings behaviour.”

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