New research from LV= shows a worrying number of consumers aged over 55 are not planning to take financial advice when they retire. This means people risk losing out on thousands of pounds over the course of their retirement, leaving the UK on the cusp of a ‘mis-buying’ crisis.
It is a year since the final Financial Advice Market Review (FAMR) report published 28 recommendations to help make financial advice more accessible and affordable for consumers. While progress is being made to increase the take up of advice, it is currently worryingly low. Six in ten (61%) approaching retirement still say they don’t plan on using a professional adviser and half (52%) think they can make the right decisions without advice.
One of the reasons for not taking financial advice appears to be a lack of understanding of what it offers, with a third (33%) not certain they know the difference between guidance and advice and just one in five (22%) thinking it is good value for money. Other reasons given include: people relying on their own research (23%), not thinking they have enough money to make it worthwhile (22%), and advice being too expensive (15%).
This demonstrates an urgent need for Government, regulators and industry to do more to show consumers the value of advice, including better promotion of the FAMR reforms. Two of the recommendations from the report are due to come into effect in April: the Pension Advice Allowance and the tax-break for employer arranged advice. However, despite the fact these changes are only weeks away, knowledge of them is low. Two thirds (68%) of over 55s are completely unaware of the Pension Advice Allowance and eight in ten (80%) don’t know about the tax break for employer arranged advice.
The pension freedoms have given consumers welcome flexibility over their retirement options, but this has also created greater complexity and without financial advice consumers are at risk of making the wrong decision. The FAMR recommendations help make advice more suitable for the mass market but much more needs to be done to promote the value of advice as those who do use an adviser often get more from their money.
The creation of a new single financial guidance body is an ideal opportunity to address this issue. LV= wants the new body to have a requirement to signpost people to advice where appropriate and to publish regular statistics showing how many people are being directed to advice. The Financial Conduct Authority could also do more to promote advice, for example by explicitly stating that advice results in better outcomes in the risk warnings providers give consumers at retirement.
Philip Brown, Head of Policy at LV=, said: “The poor understanding of financial advice is particularly worrying at a time when consumers are faced with more complex decisions about retirement than ever before. Taking financial advice is vital to ensure consumers are equipped to make the most of their hard-earned savings and get the income they need in retirement.
“Although the work on FAMR is set to address the advice needs of the mass market, not enough is being done to educate consumers about the value of advice. LV= has repeatedly warned that without further action to increase take up of advice we face a mis-buying crisis, and showing consumers why it is good value for money is a key part of this.”
New affordable solutions, such as LV=’s Retirement Wizard, will help make regulated advice accessible to more consumers who would otherwise make important retirement decisions without taking financial advice.
To help consumers understand the value of financial advice and how it can improve their retirement income, LV= has produced a list of answers to frequently asked questions. This information can be found here.