Matt Ward highlights key points from AKG’s latest pension freedoms paper
AKG published its latest pensions research paper in July 2022 – Freedoms revisited – Where do we go from here? Here are some of the key takeaways for advisers:
Concerns around inflation and the cost-of-living crisis – This is a very real threat and concern for people and will have a direct impact on the considerations of pensions customers across age groups in both accumulation or decumulation pension phases. We have had such a prolonged period of low inflation that a lack of inflation may be almost baked into people’s assumptions and their positions/plans could be heavily destabilised. The personal finance profession therefore needs to be both helpful, practical and realistic in the way in which it seeks to educate and address this.
Impact of inflation and investment volatility on drawdown – From an adviser perspective, inflation and investment volatility represent key retirement planning concerns for clients, so they need to be warned about potential impacts. While the economic backdrop and markets had been relatively benign since the pension freedoms changes came into force, income drawdown investment portfolios are now facing a series of challenges and will need to withstand a period of turbulence. Pension assets, and others where support required, will have to sweat for longer.
Regulatory focus and consistency required – There is a lot riding on the Financial Conduct Authority’s (FCA) body of Consumer Duty work when it comes to pensions.
Firstly, it is widely perceived that the regulator has been playing catch up since pension freedoms came into force, so the Consumer Duty needs to help address this ‘gap’. Secondly, outcomes are all-important for pensions customers and these will be challenged by inflation and investment volatility. Thirdly, regulatory change and tinkering are not seen as good for the market and they serve to make adviser businesses nervous.
A period of regulatory certainty and consistency would therefore be welcomed.
DB transfers still causing concern and ripples – Meanwhile, the defined benefit (DB) transfer backdrop is still worthy of reference. It represents both a reputational issue for the industry – the FCA continues to review advice processes and historical cases – and an operational issue in terms of accessing professional indemnity cover for adviser firms. Many firms have decided to back away from DB transfers, so this may also create some specialist transfer advice capacity concerns for customers looking for help.
Developing affordable/different advice options – While improvements and efficiencies can always be made to solutions and processes, it is fair to say that the mid to top end of the advice market is well served. But there are most definitely opportunities for the development of more cost-effective and transactional advice solutions to fill the gap between guidance and the middle of the advised market. Technology will be a key facilitator and the workplace will be a vital ‘development lab’ for such options.
Replenishing advice ranks – Acknowledging that advice capacity may also be challenged over time, given the typical age profile of the adviser community, there is an associated requirement to recruit new talent into advice roles. This might be via apprenticeships, academies, careers fairs for first-time careerists, or helping second careerists to understand the opportunities that exist in financial advice.
New client acquisition requirements for adviser firms – The impact of both pension freedoms and Covid-19 has been felt to be largely positive on advisers’ interactions with existing clients, enabling additional opportunities to prove and provide value. And the enforced eye-opening to remote servicing opportunities has been a revelation. But it has not necessarily been as easy to recruit new clients. While this is a situation that some firms may be comfortable with, there will be many who will need to give further thought to new client acquisition tactics to support future growth. Longer term, this will be essential for not only advice provision but also the value of advisory firms.
Exploring intergenerational planning opportunities – Pension freedoms have altered the order in which clients might plan to access their pensions and other assets, with inheritance planning considerations becoming a growing factor. For those adviser firms developing servicing propositions in this area, there will be a prerequisite to broaden advice relationships beyond the primary client to spouses and dependants. Development of relationships with next-gen customers might also be facilitated via the family servicing approach.
Ingredients for provider success (consumer expectations) – It was fascinating to see what consumers want from their pension providers. The top trait/quality is ‘honesty’; second in order was ‘value for money’; and selected in joint-third position were ‘clear communications’ and ‘transparency’. This sets out a clear agenda and consumers are throwing down the gauntlet to providers.
Proposition development opportunities – While the development of drawdown products has been the standout area for development since pension freedoms came into force, the general perception is that the market has been light on innovation. The challenges presented by the economic backdrop and investment volatility may encourage a revisit on proposition development thinking and conditions may permit further consideration of annuities and guaranteed solutions. Digital capability and connectivity between solutions are also still felt to be an area where further improvements can be targeted.
Collaborative and consistent pension initiatives and messaging – With customer education and enablement crucial to future levels of pensions engagement and, acknowledging that multiple opportunities exist for companies across financial services, there is a requirement for collaborative and consistent activity to boost things for the greater good. Examples of this might be in collaborative educational efforts between trade bodies and providers, enhanced interaction between the Money and Pensions Service, providers and advisers when raising awareness about guidance and the rollout of pensions dashboards when illustrating to customers how they can better understand their aggregated pensions resources.
The full AKG research paper, sponsored by abrdn and Scottish Widows, is available to download at www.akg.co.uk/downloads.
Matt Ward is communications director of AKG
