According to pensions provider MGM Advantage, the much predicted upward movement of IFAs along the value-chain will leave a substantial mass market without proper retirement advice, resulting in more people buying wrong retirement plans and getting poor value from their pensions.
Andrew Tully, pensions technical manager at MGM said that retirement income is not about taking highest annual income, but being also on the right pension plan.
Many savers are currently on the wrong retirement plan and “this will worsen post RDR (Retail Distribution Review),” as more people will not be able to afford retirement advice, cautioned Mr. Tully.
“IFAs will move up market so less lower-end customers will get served so therefore they will have limited access to IFAs to bring these to their attention. How will that void be filled? We don’t know. Comparison websites are good but all they do is facilitate the market – it’s only about the rate and not about the retirement plan,” said Mr. Tully.
Many people should be on enhanced annuities, but in reality very few are accessing them, he said citing MGM’s research that showed 23 percent of savers who went to an IFA are on enhanced annuities whereas the number drops to a meager once percent for those who did not approach an IFA.
IFAs should ensure that their clients are on the correct retirement plan and should learn to look beyond the headline rates only, said Mr. Tully.
“IFAs need to think about the consumer needs and not just focus on the headline rate. For example, consumers may want protection against inflation, or they may want to receive death benefits”, he said.
“A lot of people simply focus on how much money they can get each month and are not thinking about their long-term needs,” he added.
The Open Market Option (OMO) system needs to be reviewed to encourage more people, he observed adding a “bit of education is needed to help” people understand it.
“People need further education as they are pretty much guaranteed that if they take the rate the existing provider gives you, you are highly likely to be able to improve on that,” added Mr. Tully.