The latest research from pension product providers gives some great insight into what employers and the ’man in the street’ thinks of pension provision, their expectations for retirement and how they should prepare for it. But are these just statistics or do they reveal an important picture of how the role of the corporate adviser could evolve post RDR and leading up to auto-enrolment?
HSBC’s The Future of Retirement programme is a world-leading independent study into global retirement trends. Its research across 17,500 people in 17 countries shows a divergence of views towards the provision of income in retirement. In emerging economies, rising incomes and living standards are merging with a culture of saving and self-reliance to create a generation of well-prepared retirement optimists. Whilst in the West, where generous state and company pensions are a thing of the past, respondents are pessimistic, expecting to be worse off in retirement than their parents’ generation. Individuals now have to take much greater personal responsibility for their retirement planning. The ’power of planning’ appears to provide the solution, with a ’planning premium’ existing. On average planners save 2.5 times more towards retirement than non-planners and enjoy 39% more than average in retirement wealth. The question is who will provide the guidance and information to enable us in the UK to plan for our retirement?
HSBC’s research showed that 62% of all UK respondents wanted their employer to provide information about NEST and other pension options.
Whilst research from Scottish Widows revealed that 40% of employees believe that employers offering a pension should also offer a full advice service. There is clearly a thirst for more facts and advice about retirement planning.
However, employers themselves will need help and guidance on workplace pensions. Research from Jelf Employee Benefits, showed that employers are more concerned about auto-enrolment and the removal of the default retirement age, than what the potential merger of tax and NI would mean for their business.
So a picture is emerging of a gap in the market for workplace advisers who provide advice, guidance and information to employers and employees alike. The RDR reinforces this opportunity.
The provision of advice to employers could see a workplace being segmented into a number of different employee groups, with the most appropriate scheme being offered to that target group. As long as there is no discrimination between employees, this ’whole of market’ advice could include NEST as an appropriate solution for lower paid workers. After all the jury is out on how consultancy charging will work in reality and how much employees will pay for it. Charges of 50% to 100% of the first years contributions have been quoted which are considered to be unfair by many in the pensions industry, particularly for lower paid employees. For those employees who change jobs and employers frequently, NEST could be ideal for their pension provision.
How employers will afford to provide their employees the guidance and advice they want and demand is difficult. Many employers are reluctant to pay for advice and the cost of this help will inevitably be deducted through consultancy charging. Face-to-face advice is cost prohibitive, so to help employees plan for their future retirement there will be the need for a greater use of technology and possibly help from the product
provider in supporting workplace education and enrolment.
The introduction of holistic planning software will help employees gain a picture of their state of wealth in retirement. These tools will never replace the benefit of face-to-face advice, which is where a comprehensive education programme including seminars, workshops and interactive information will really create interest and employee engagement. Any corporate adviser who has this experience and expertise is likely to succeed in the future.
It is clear from the latest research that employees need support and guidance to help prepare for their retirement. Whilst it is unclear how this can be provided cost effectively, what is apparent is that those advisers who embrace change and are prepared for the future, will succeed in this new world.