Advice where advice is needed

AEGON, reclame op gebouw in Rotterdam

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I’ve been reading Aegon’s latest report into Incentives for Saving and the consumer research that backs it up. It makes pretty dismal reading.

Im depressed that after so many years of producing such reports, pension providers still seem unable to see beyond their own narrow agenda – “how to encourage people to save into our products”.

The headline finding is that people don’t value financial advice preferring to take their own decisions. Predictably they see their houses as their pensions and trust their employers pensions more than personal savings vehicles. Despite the sums invested in financial education the surveys reports show people have only the haziest idea of how pensions work and for the most part aren’t bothered if they do or don’t.

Where advisers figure in the consumer research they are referred to as “persuading” or “selling” – advice is little more than cajolement.

This is not surprising. Financial advisers are rewarded on results. They are not rewarded for giving people a clear understanding of their choices but on the size of the cheques and direct debits that accompany the application forms signed by their “clients”.

They are only incentivized to see their customers again if there is a reasonable chance of getting more “business”- eg cheques and new or bigger direct debits. Unsurprisingly “advisers” are rarely seen twice.

The report makes certain suggestions as to how pensions can be better presented, acknowledges that most people save for their pensions through employer sponsored schemes and agrees that in a world where most people can’t be bothered with pensions, auto-enrolment is a good thing.

It stops short of acknowledging that by promoting the commissions that have created the perverse incentives that have led to disillusionment with their products,  the insurers are largely responsible for the lack of trust both in pension products and pension advice.

While the report makes certain suggestions surrounding annuitisation and equity release – it makes no mention that the reports sponsor – Aegon, has withdrawn from providing annuities in the UK concentrating on making money from income drawdown, an advised product that is not suitable for the vast majority of the savers who have provided the report’s research.

 The combined impact of the Retail Distribution Review, NEST and the introduction of Auto-Enrolment will make the traditional role of financial advisers – to bludgeon their clients into personal pensions, redundant. Advisers will in future concentrate on that small tranche of retirement savers who have the interest and resources to use SIPPs and income drawdown.

But what of the 460,000 people who bought individual annuities in 2009 or the 750,000 people who will reach 65 in 2011? These are the people who really need financial advice, they are the people who have the accumulated pension funds and the immediate prospect of unfunded liabilities and they hardly get a look in!

And where is there any sense of contrition from the insurers or a sense of responsibility for restitution? Insurers like Aegon are currently sitting on a vast pile of this nations pensions savings, wringing one’s hands and calling on regulators and the Treasury is not good enough.

Aegon both in its current guise and as Scottish Equitable has traditionally supported financial advice , perhaps it can start thinking of ways to ensure that advice is available to its mature policyholders now that it is needed.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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