The pension reforms may have given people greater power over how they manage their investments and savings but who, if anyone, do they turn to for advice? And while nearly sixty per cent (59.4 percent*) of UK employees are part of a workplace pension scheme, what further support are companies providing to ensure their employees are educated enough to make future financial decisions? Andrew Firth, Chief Executive of Wealth Wizards, the first online financial adviser in the UK, takes a look at ‘the advice gap’, and the ensuing opportunities now available to plug this gap for employers and employees.
The need for cost-effective access to financial advice
Freedom reforms have been implemented, which mean more choice for consumers at retirement. But how are they going to make financial decisions that are right for them? Some do not understand the risks. Many want help, but don’t know where to turn. Financial advice is perceived by many as expensive and fees for basic pension service advice rose by around 16-17 per cent over the year when freedom reforms were introduced.** Also trusted expert advice can be hard to come by and some Financial Advisers are no longer taking on new clients. Generic guidance is available but this does not provide personalised recommendations for solutions or products. However, there is a recognised consumer need for more cost-effective financial advice as the government puts pensions at the forefront of its agenda. A government-inspired review aims to “radically” improve the consumer’s access to financial advice. In considering the ‘advice gap’, the review wants to know how people who work hard and want to save for their future can more easily access the financial advice they need.
Post auto-enrolment: the demand for a continual financial advice offering
Auto-enrolment is now complete for larger businesses and 1.8m small businesses are coming close to their staging date. Employees are now faced with significant pension decisions, including what to contribute and how to invest their pensions. Default funds are helpful, particularly when people don’t engage, but they are designed for the average employee and who is really average? A survey as part of CIPP’s annual National Payroll has revealed the nation’s shocking lack of planning for retirement, with 30 percent of all surveyed not even sure if their pension pot will be enough to live on. HR teams are starting to think more about additional support beyond core employee benefits, such as improving employee’s financial understanding, to support them to make informed decisions. Education helps, but many employees will still seek personalised advice, rather than a ‘one size fits all’ approach, and this service should be seen as part of a standard employee package.
Plugging the ‘advice gap’
One answer to cost- effective, personalised advice can be found in the form of an online adviser (or robo-adviser). These services have become highly sophisticated, and have the potential to be a game-changer, making financial advice affordable and accessible to everyone. Combining real financial planning experts with smart software technology and algorithms, users are able to get full and personal advice for their retirement and pensions in minutes. In the wake of auto-enrolment, Human Resources and Reward & Benefits professionals are considering how to drive engagement and helping employees to get the most from their pensions in an inclusive way. Regulated online financial advisers can provide a great value option working side by side with employers and existing EBCs the technology can be rolled out quickly and securely. Employees can then access cost effective, online advice via simple web apps to help them make the most of their pension savings. And there is the added reassurance of someone to phone if they get stuck or need more help.
Organisations, both big and small, are at different stages in the auto-enrolment process. Many are, understandably, still navigating their way around the basic requirements. However many employees are wondering where to turn for personalised advice on their pensions and usually there is nothing in place to help them.
**Research by thisismoney.co.uk