Legislation to allow product innovation and more holistic retirement advice which takes account of property wealth is needed, a report has found.
In Decumulation - understanding the needs of the nation, Scottish Widows surveyed 1,500 pension savers, both retired and yet to retire, and used the findings to explore what policy interventions would meet their retirement planning needs.
Scottish Widows said there was a ‘misunderstanding’ pension providers could simply solve the pension savings gap by developing innovative products.
Emma Watkins, managing director of retirement research, said pension and investment products were designed by firms within a framework set down in legislation by the Department for Work and Pensions (DWP) and HMRC.
She said: “We need help with the product and on the legislative side. We're very keen to work with the Financial Conduct Authority on advice and guidance but we need more tools than we have at the moment to help people make the best decisions.”
Advice that 'talks through pension options'
Scottish Widow used the four advice options as framed in the Financial Conduct Authority’s (FCA) advice guidance boundary review to gauge how much advice savers wanted and were willing to pay.
The report found the most popular model of pensions-specific financial advice was choice architecture.
The majority of savers, 36 per cent, favoured this model of advice where the pension provider asks questions and “walks through options to reach a specific outcome”.
Only 14 per cent opted for full financial advice, which was the least popular option.
The most basic, where savers were given information for them to make their own decision, was favoured by 17 per cent, with 14 per cent opting for a partly qualified financial adviser who will “answer a specific question you have but the answer will be personalised and won’t consider your wider financial position”.
Glancy said: “Some of the concepts explored by the FCA in DP 23/5 are worthy of further consideration, choice architecture in particular.
“The simplified advice proposals don’t hit the mark and an alternative means of making advice accessible needs to be found.
“We believe that technology could be key to reducing costs for those whose assets are not substantial enough to merit the services of an independent financial adviser."
Annuities and legacy
Scottish Widows used the findings to develop a retirement matrix. The provider said it was able to present the information in a cube form, which demonstrated the top priority of savers was certainty of income followed by the ability to be able to pass on their pension wealth.
Glancy said the need for certainty and the desire to allow some pension wealth to be passed on was evidence that annuities, or annuity style products including potentially with profits, were still being undersold to savers.
“The survey is telling us 75 per cent of people want an income for life and 70 per cent of people would like, if possible, the ability to pass something on to the next generation.”
