The inventor Thomas Edison said: “Opportunity is missed by most people because it is dressed in overalls and looks like work.”
The biggest opportunity I have ever seen in financial services is surely the government’s pension initiative called freedom and choice. You’d think ‘freedom’ would bring happiness. But when we completed a week of detailed qualitative research with 30 people in the throes of major retirement decisions, we did not see that.
Existing and prospective retirees are not celebrating George Osborne’s retirement freedoms. Instead, they are anxious and desperately want good advice and new options that bring the new freedoms alive.
HMRC data shows nearly £4bn has left pensions accounts since April 2015 but only a small number of people have used The Pensions Advisory Service. With the average price of an independent financial advisor (IFA) standing at £1,500, few people are likely to pay for advice. So there is now little take-up of advice precisely at the time when people need it most.
We found three pressing issues:
1) Help people understand their portfolio
Pension pots are important but they only form part of how people fund retirement. The pensions industry arguably reinforces the emphasis on pension pots with the constant reminder that people ‘haven’t got enough’ (the average pot is worth just £30,000). I’d argue this falsely represents the picture. People have all kinds of investments and these are valid parts of a retirement portfolio. If our research is accurate, it showed clearly that the retirement solutions world needs to help people make sense of all of their various assets not just the amount that has been invested in a pension.
2) Provide sharper advice and better products
Choice is only good if there are good options. But we found clear evidence that people strongly feel these are lacking. They understand that annuities and savings accounts give poor rates of return but what else is out there? We got the sense there’s lots of money that is not working as hard as it could. We saw delay and avoidance. Better advice and product offers would address much of the uncertainty.
3) Support the ‘confused middle’
Some savvy retirees have good resources and have benefitted from the new pensions freedoms. The initial pensions reforms in April 2015 were an unexpected ‘bonus’. But there are many more people who are less informed and therefore vulnerable. They could well fall prey to opportunist offers or be prone to the risk of ‘do-it-yourself’ options such as clubbing together for investment properties. We believe supporting the ‘confused middle’ is a major commercial opportunity.
Will the investment world grasp the nettle?
Such an exciting market opportunity as this – a true untapped need – is rare. People want help in planning for retirement and our qualitative research revealed there is no ‘one-size-fits-all’ approach.
People are not wasting their pension pots as was initially feared. They are making some sensible decisions about paying off a mortgage, investing in bonds for children or grandchildren, and anticipating future needs. But they need much more help.
Our research tells us the retirement solutions world should look at things from a consumer viewpoint and understand the ‘rattle bag’ of assets and resources we all assemble. The industry must establish clearer advice paths and services. It needs to bring stability and certainty to the less informed.
Having witnessed people address big retirement issues, we are convinced that leading financial services brands have an extraordinary opportunity. So who in the industry is prepared to venture beyond the safe margins of conventional retirement solutions? Is it really that difficult to find a way forward? Let’s get to work…..
ICM Unlimited research director Nick Eul-Barker