Don’t mind the gap - let’s mend the gap

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We recently wrote about the Financial Advice Market Review and the work being done to try and close the financial advice gap in the UK.

We’ve completed our own research that shows just how important this work is and it highlights the number of people that need help when planning their pension.

Lack of confidence around pension planning 

We found that only 14% of people were confident about planning their retirement goals and investing on their own. The research also showed that just 20% were happy to decide for themselves on how best to access their pension. 

These figures clearly indicate that the vast majority of the population is not in a position to take a self-service or DIY approach to pensions and would benefit from professional financial help. But despite this just over a fifth seek advice when:

  • Planning their pension goals (22%)
  • Consolidating their pension pots (22%)
  • Selecting a pension product (21%)

Improving access to guidance and advice 

When there are so many people who aren’t confident about managing their pension and so few that take professional advice, it’s essential we change the status quo. 

If we want people to grab pension planning by the scruff of the neck and properly manage their financial journey towards, into and through retirement, then we need to prove that it’s worth their while. The industry needs to give them practical help in terms of information, guidance and planning tools and we’ve got to show them why paying for financial advice offers good value.   

From previous research we know that 65% of people didn’t understand the new pension freedoms before they came into force*  and our latest survey shows that demand for information is high with 75% saying they want clearer communications about the different types of guidance and financial advice available. 

Improving access to information, guidance and advice

In recent years we’ve done a huge amount to improve the amount of information we offer and the way it’s presented. We’ve developed a number of different digital tools to make it easier for people to plan for retirement(Opens new window) - and to actively manage their pensions(Opens new window)

As digital access to online information gets better and online functionality in the pension market continues to grow, it will encourage more people to actively engage with their pension. 

Once pension savers are interested it’s then easier to show them how different pension planning strategies could affect the future size of their savings pot and to outline the specific areas where professional advice could help. 

The vast majority of financial advisers are doing an excellent job and our research found that 90% of those who have taken advice were happy with the service they received. This suggests it’s not the quality of service that’s holding people back. The stumbling block seems to be the up-front cost of professional advice and so demonstrating its value effectively has got to be a major priority for the industry. 

I’d also like to see, for example, a situation where the advice on offer was more modular and so people could pay for advice in a particular area – such as pensions – without having to go through a review of their entire financial position. This segmented approach would encourage people to pay for advice where they felt it was most needed and so offer them better value.  

The more savers understand about planning for their retirement and the easier it is for them to engage with their pension the more they’ll want to make sure they’ve put a well-considered and effective plan in place. I think that’ll lead them towards advisers and help us to close the financial advice gap.

*Aegon Consumer survey, 4th and 10th February 2015, sample of 540 consumers

Photo of blog author Duncan Jarrett, Managing Director Retail and At Retirement

Duncan Jarrett

Managing Director, Retail and At retirement