The advent of the recent pension freedoms has arguably made it more important than ever that the public have access to quality, affordable financial advice. However, a study by research agency One Poll, on behalf of price comparison website Money.co.uk, has shown that the average consumer is prepared to pay just £253 on average for pensions advice. Four fifths of the 669 over 55s surveyed were not prepared to pay anything at all.
In contrast, a four figure advice fee is commonplace amongst financial advisers, even for the simplest transactions. Firms’ advice fees are rising further in many cases as a result of the ever-rising cost of regulation.
The Government offers a free guidance service known as Pension Wise, but this service can only provide one conversation of around 45 minutes, and can only describe the available options rather than recommending an individual’s best course of action. Furthermore, those wishing to switch from one pension contract to another in order to better utilise the freedoms must seek professional advice.
Two advisers gave differing reactions to the survey in press interviews. Alan Solomons, director of Alpha Investments and Financial Planning, commented:
“Most people are employees and have no idea what professional fees are – the regulatory burden or of what is required to do a professional job.
“I have been approached by people who just want a piece of paper to show their pension company that they have had advice. Most people have no idea about the impact of compound interest on their funds nor the impact of inflation on their pension.”
Matthew Harris, owner of Dalbeath Financial Planning, called on advisers to look at ways of providing low cost advice. He said:
“We don’t advocate IFAs helping clients to do something that is plainly a bad decision, but we do believe that as long as people are informed of the pros and cons of pension withdrawals then they have the right to make their own choices. IFAs need to adapt to this new world and offer low cost ad-hoc advice.”
Pensions minister Baroness Ros Altmann has previously said it would be “ridiculous” to scrap the requirement for certain pensioners to take regulated financial advice. At present, regulated advice is a legal requirement for anyone wishing to switch a pension pot worth £30,000 or more from a defined benefit (final salary) scheme to a defined contribution (money purchase) scheme; or for anyone wishing to switch more than £30,000 out of a scheme containing safeguarded benefits.
The gap between what consumers are prepared to pay for advice and the fees that are likely to be charged by advisory firms will undoubtedly be one of the areas the Financial Conduct Authority and the Treasury will consider in the Financial Advice Market Review. This review will look at the barriers preventing many people from accessing financial advice.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.