The DWP recently concluded a review of the number of people likely to achieve their desired retirement outcomes. It estimated that around 13m people will not. Factoring in automatic enrolment and the new single tier state pension, this figure only reduces to 12m. On the face of it, this seems disappointing. In practice, many of the 12m will be in a better position than they were, having saved something. Just not enough.
That strikes me as a population which needs further guidance, if not advice.
But of course it won’t be employees setting up pension schemes, but employers. In my experience, as the SME population becomes aware of their responsibilities – and they are becoming aware – they will also start to realise the complexity of the task. It should be simple; set up a scheme and put employees into it. Of course, in practice, they’ll need to consider eligibility, earnings basis, deferral, postponement and ongoing data management, amongst other things. And most smaller employers don’t have HR departments, let alone pension teams.
Almost one million employers still need to set-up a pension scheme. I think many of them will need advice.
If there are 20,000 advisers and 1,000,000 employers – and they all sought the services of a financial adviser – that’s 50 employers each.
As an employer delves into the landscape for pensions – even before they start to design their own scheme – they’ll see the myriad of debates the industry is undertaking. It’s a cluttered road of things to consider, with complexity and uncertainty ahead. Here’s my attempt to visualise that (click on the picture to enlarge):
But for members, the road ahead should be clearer. What really matters are the things that lead to good member outcomes. Here’s what the regulator agrees really matters (click on the picture to enlarge):
If we look at what this actually means for a pension saver it seems straightforward; decide how much to pay, where to invest, make sure you get good service and clear communications, be assured that your pension assets are safe, ensure you get a good deal and then make the right choices at retirement with what you’ve saved.
In practice, many of these decisions will be made for them by virtue of the scheme design. There will be a default contribution level, a default fund, an agreed charge and a chosen administrator. And of course the scheme design will be at the behest of the employer. As we’ve already considered, most employers aren’t pension experts, so I think many will ultimately pay for the help they need.
So, who needs advice? It’s difficult to see who won’t.