Facilitating regulated advice increasingly common amid trustee fears

An increasing number of pension scheme trustees are facilitating regulated financial advice for their members, as concerns grow that the pandemic and rising cost of living will add to the significant challenges facing members and schemes.

Research from Wealth at Work revealed that nearly all (92 per cent) trustees were concerned that their members approaching retirement will be targeted by scammers.

In addition to this, 88 per cent expressed concern that members will not be able to understand the tax implications of accessing their pension, while around 86 per cent were concerned about members’ lack of understanding of the risks they face if they transfer out.

A further 70 per cent of trustees also shared more broad concerns about a lack of engagement with their members at retirement.

"In the current climate, it is not surprising to see that trustees have so many concerns for their pension scheme members as they approach retirement," commented Wealth at Work director, Jonathan Watts-Lay.

Watts-Lay also suggested that, when considering all these risks, it is "unsurprising" that so many trustees (73 per cent) were concerned that that their members’ money will not last the duration of retirement.

Action is being taken to combat these concerns however, as 50 per cent of trustees said that they provide financial education for their members at retirement, whilst 48.5 per cent provide or facilitate financial guidance for members at retirement.

In addition to this, nearly two fifths (39 per cent) of trustees were facilitating regulated financial advice for their members, a 9 percentage point increase since the last survey in 2021.

Despite the "encouraging" progress over the past year, Watts-Lay emphasised that the financial decisions that members need to take are "increasingly complex", with more still to be done.

"Pension freedoms which came into force in 2015 have firmly put the control in the hands of individuals, but with this comes increased risk. It is likely that those who do well are those who are the most informed," he continued.

"Unfortunately, many find this whole area very confusing and are fated to make mistakes. As more and more people retire on defined contribution savings alone, this situation will only worsen unless these challenges are overcome."

He also pointed out that, the backdrop of a global pandemic, and more recently the cost of living crisis, will only add to the already significant challenges that members and schemes face.

Watts-Lay stated:“The earlier support is provided in an individual’s life, the more likely they are to make better decisions. Also, income needs are likely to vary throughout what may be 25 years or more in retirement and cognitive decline may hinder decision making, meaning that ongoing support is likely to be required.

“Carrying out due diligence on providers can make the process far more robust. This should include checking that any financial education and guidance providers are workplace specialists with experience in providing support to members.

"Due diligence on regulated advice firms should cover areas such as the qualifications of advisers, the regulatory record of the firm, compliance processes (e.g. compliance checks of 100 per cent of cases), pricing structure and experience of working with employers and trustees.

“Ultimately, empowering members by providing them with access to appropriate support at the right time, can improve financial capability and resilience, which should result in better retirement outcomes for all.”

Adding to this, Pensions Management Institute policy and affairs director, Tim Middleton, said: “The range of choices available – and the increasing scope for mistakes and exposure to fraud – has made trustees aware of the duty of care that they have to members approaching retirement age.

"The minefield of choice has given members the opportunity to use their retirement benefits in ways that closely match their specific requirements. However, with this choice comes a range of risks.

"Members are commonly unaware of the tax implications of their choices, and many fail to understand the nature of longevity risk.”

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