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Will you take up the offer of free guidance?

Will you take up the offer of free guidance?

Category: Retirement

Updated: 03/07/2014
First Published: 03/07/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Government's promise of a "guidance guarantee" to those approaching retirement sounds like a good deal. The aim is to ensure pre-retirees have the information they need to make better financial decisions, ideally helping them maximise their income throughout retirement, but it hasn't been met with such widespread support as might have been hoped.

According to research from MGM Advantage, just 42% of those approaching retirement would be likely to use the guidance service when it's launched next year, leaving the majority remaining to be convinced of its merits. Of the remaining 58%, some 31% were undecided as to whether or not they'd use the service while a further 27% said they'd either be unlikely to or definitely wouldn't, indicating that a lot of retirees will seek advice elsewhere – or would perhaps avoid it altogether.

It's a fairly startling figure, with less than half of pre-retirees surveyed actively thinking about using this service. Given that recent changes mean retirees will have increased flexibility around how to use their pension pot, it's arguably more important than ever to get suitable advice, particularly as deciding the right course of action depends so much on individual circumstances.

As Andrew Tully, pensions technical director at MGM Advantage, says: "The industry will need to work hard to encourage people to access the guidance service once launched… or despite the greater flexibility and choice being introduced many customers may end up with poor outcomes."

So just why wouldn't consumers want to use this kind of service? Well, lack of trust in the providers of that service could well have a part to play.

Additional figures reveal a clear desire for retirement advice to be impartial, with 83% of over-55s surveyed thinking that any guidance offered should be impartial and independent from pension providers. Just 5% thought that impartiality wasn't an important characteristic, while only 12% would trust their existing pension provider to provide this kind of guidance.

A key issue however, particularly when it comes to annuities, is general inertia among consumers. There's a clear lack of engagement with around half of retirees having traditionally rolled over their pot into an annuity without giving it a second thought, but that could have left a lot losing out.

The market wasn't working properly, said Andrew Tully, but "if many continue to roll over into the holding provider's drawdown (or annuity or other solution) the market still won't be working properly. That's why access to guidance and advice will play such an important role.

"We need to think of new ways to engage and encourage people to use the guidance service," he added, otherwise the same problems will continue to present themselves.

So, will you be taking up the offer of free guidance? Hopefully the answer is yes, as that's the best way to ensure you'll be starting off on the right foot, but clearly there's work still to be done to encourage the majority.

As Michelle Cracknell, chief executive of The Pensions Advisory Service, said: "This research is a good reminder that we will have to work very hard to demonstrate to people the benefits of taking guidance.

"Guidance services already exist but not enough people know about them or use them. We see the Budget promise of guidance as an opportunity to encourage more people to take up the opportunity but we will need to lead the horse to water and show them that the water is clear (impartial) and it is good to drink."

What next?

Find an annuity.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.