For As long as I have been writing about the European fund industry, which is quite a long time now, there has been a great deal of chat about the need for improved private pension provision.
But are we any closer to achieving this goal than we were, say, 20 years ago? I fear not.
It’s a bit like the single market for financial services in Europe. Progress has not been non-existent, but it has been glacial. Despite all the big, clever brains that crowd the financial services industry, no one seems to be able to come up with a simple, easy-to-understand retirement solution that could provide your average person with a decent living in their twilight years – much less one that could be rolled out across Europe.
Pensions choices remain rather complicated and, as far as I can see, a bit of a gamble. This is a problem, not least because research shows that most people don’t seek professional pensions advice.
For example, a new survey of 943 people aged 45-65 in the UK, conducted by YouGov on behalf of Old Mutual Wealth, found that 35% of people had never sought any kind of help or advice about their pension savings, and only 21% had taken advice from a professional financial adviser. Paul Feeney, chief executive of Old Mutual Wealth, is understandably concerned about this: “The new pension freedoms [being brought in by the UK government in April] are great news because they give people control over how they can access their retirement savings, but they could be a disaster without financial advice,” he says.
This is true, though having had some truly shocking financial advice in my time, I would argue that they could be a disaster even with financial advice.
Either way, there is another problem. According to the Association of Professional Financial Advisers (APFA), financial advisers are increasingly turning clients away and the most common form of advice for which they are doing this is pensions.
Research conducted for APFA by NMG Consulting found that 61% had turned clients away during the 12 months to January 2015, up from 54% the year before. Of those advisers, 57% had turned away potential clients seeking pension advice.
Why did they do that? Money, stupid. Forty-two per cent of financial advisers turned away clients because the advice services they offered were not economical based on their client’s needs and circumstances. This has created what Chris Hannant, director general of APFA, calls an advice gap – and it could be a serious problem, particularly in the UK, where you will shortly be able to invest your pension in turnips if you want to.
“Policy changes are pushing the public to take a greater interest in their finances and encouraging a more hands-on approach, “ says Hannant. “This increases the need for financial advice, but the weight of regulation is pushing up costs for advisers and putting professional financial advice out of reach for many who would benefit from it.”
He calls for “a regulatory environment that allows room for innovation, enabling advisers to bring down the costs for consumers and adapt to their clients’ changing expectations”, and says that this is not about reducing standards but about reducing complexity.
That may be so, but how about reducing product complexity as well? Wouldn’t that make it easier to provide clear advice at a reasonable price?
Looking at this mess, I do wonder a little bit about all the discussions we used to have about whether pensions should invest in hedge funds. Couldn’t that energy have
been better spent on creating retirement solutions for the masses? Deutsche Bank’s annual Alternative Investment Survey shows that the average hedge fund returned only 3.33% in 2014.
A simple, affordable retirement solution that everyone can understand. Is it too
much to ask?
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