Pension freedoms and changes to pension taxation are creating increased demand for financial advice from members of workplace schemes. Smarter Business asks Standard Life’s Alan Ritchie what providers can do to help advisers step up to the plate.
How can providers’ understanding of the workplace pensions they administer help intermediaries target members more effectively.
Workplace pensions is an area where providers and advisers can both benefit by working together in partnership.
Financial advice is at its most valuable in the most complex situations. Providers can generally help 95 per cent of people get to where they need to be – it is in advising the 5 per cent with really complex issues that advisers can really add value. Getting to this 5 per cent is therefore crucial for advisers, and providers can help. For example, providers will target those they think might face issues relating to matters such as the lifetime allowance or annual allowance with communications highlighting the need to seek professional financial advice. We can promote awareness of the adviser, and can even tailor communications to recommend that scheme members contact a particular individual within a firm, giving their personal contact details.
With the demand for advice caused by the pension freedoms and changes to retirement savings rules, what can providers do to help advisers deal with people more quickly and effectively?
There are a number of ways providers can make life easier for advisers. First, the adviser should ask if the provider is giving the scheme member a good retirement journey? If there has been a good conversation between the individual and the provider throughout the accumulation phase, understanding of retirement saving and investment should be considerably higher. That will make the adviser’s job easier when it comes to getting the client to take forward the advice being offered, whether the adviser has been proposing paying more in, explaining risk and investment strategy or suggesting more efficient portfolio structures.
So advisers want a provider that can offer a full range of tax wrappers to which they can apply a consistent investment strategy. Pension freedoms create the opportunity for advisers to offer genuinely valuable tax planning, but they will be best placed to achieve this with a provider that has all the tools they need to do the job. Providers can also take some of the weight off advisers’ shoulders by helping with investment solutions.
Very big savings can be made dependent on the wrappers that are available. So advisers need to be working with a provider that can facilitate effective tax withdrawals.
Advisers will also want to ensure that members of a scheme will make the transition from pre- to post-retirement in an efficient and risk-appropriate manner.
How should advisers segment members of a workplace pension scheme when thinking about who to market their services to?
Advisers have long targeted C-suite individuals within organisations as potential customers. But with the lifetime allowance falling down to £1m it is not going to be just top executives who will need the services of an adviser. Senior managers will also have to make changes to their retirement saving strategy if they want it to be as efficient as possible.
Age is of course the other key driver of interest in retirement advice. It goes without saying that people start thinking about retirement saving more once they reach their 50s. And employers are increasingly aware of the succession issues they face since the abolition of the default retirement age, and the importance of putting employees in a position where they can afford to retire when the time comes.
What differences do providers see in terms of contribution levels from different types of employers?
By far the biggest factor differentiating employers where higher contributions are made from those with low contribution levels is the employer’s attitude. It all comes down to whether they see their pension and benefits proposition as a profit centre or as a cost centre. If it is a company that sees their people as their most valuable asset and that perceives the contributions they make as worthwhile in terms of retention, motivation and reward, then it is usually easier for advisers to engage further with employees. Employees of employers who see pensions as an outgoing they have to pay, for which they get little or no value in return, are a harder nut to crack.