A retirement “guidance gap” risks causing real financial harm and needs to be closed, according to a think tank.
The Social Market Foundation (SMF), a cross-party think-tank, said more than two thirds of 50 to 64-year-olds do not know how much they will need for retirement.
It is calling for an overhaul of rules around providing financial advice and guidance.
A lack of knowledge and understanding of pensions and savings leaves people at risk of not being prepared enough for retirement or spending their pension pots unwisely.
The SMF estimates that, across the UK, people approaching retirement age are nearly £250,000 short on average of the pension pot they would need to deliver the income they would want in later life.
There is a serious gap in the provision of advice and guidance around pensions, and that gap leads to real financial harm
It compared what people who were surveyed think they need with what an independent online calculator suggests would actually be the case.
Its research, sponsored by retirement and savings business Phoenix Group, suggests only 20% of 50 to 64-year-olds access regulated advice from an independent financial adviser about their pension and take-up of the Government-backed Pension Wise guidance service is also relatively low.
Just 14% of those accessing a defined contribution pension pot for the first time use Pension Wise – despite the service being free.
Only 31% of 50 to 64-year-olds with a pension have a broadly accurate idea of the savings they need to deliver their desired income, the research found.
A much higher percentage (48%) of people who get advice have a broadly accurate idea of the savings they will need and the same is true of 35% of those that have used Pension Wise, the think-tank said.
Scott Corfe, SMF research director, said: “There is a serious gap in the provision of advice and guidance around pensions, and that gap leads to real financial harm.
“Lacking an accurate understanding of what they will need for the retirement they want means some people will not save enough, and end up disappointed.
“Not fully understanding their options on the way they use their pension savings in retirement means that some people will not make the best use of that money.”
The SMF recommends that Pension Wise should be expanded, with a broader scope and new digital tools.
It suggested expanding the scope of Pension Wise should be explored, for example, by providing tailored guidance on the level of pension savings likely to be needed to achieve a given retirement income.
We must now help people feel more comfortable in making financial decisions throughout their life to help them get better outcomes. It is time to close the guidance gap
The minimum age at which people can book a Pension Wise appointment could also be reduced, to 40 or 45, rather than 50 at present, the SMF suggested.
It added that “robo guidance” could be used to provide highly relevant information and a clear visualisation of the potential impact of different options on someone’s financial position in retirement.
Clearer information should also be provided by the Financial Conduct Authority (FCA) on what constitutes “guidance” and “advice”, the think-tank said.
Andy Curran, CEO savings and retirement, UK and Europe, Phoenix Group, said: “The reality is the majority of people have to navigate the complexities of pensions on their own.
“SMF’s report identifies the cost of the huge guidance gap and how millions of savers could be substantially better off if this gap was closed.”
He added: “Major initiatives over the past decade have encouraged pension savings – but saving more is than just one factor. We must now help people feel more comfortable in making financial decisions throughout their life to help them get better outcomes. It is time to close the guidance gap.”
Commenting on the research, Steven Cameron, pensions director at Aegon, said: “While the Government’s Pension Wise service can offer valuable support, many customers will view their pension provider as a more obvious first port of call. Changing the advice boundary and removing current ambiguity would enable providers to go further in their support without fear of breaking regulatory rules.”
A Department for Work and Pensions (DWP) spokesperson said: “The Government is committed to ensuring people have the support and information they need to make informed choices about their financial futures and provides free and impartial guidance via Pension Wise and Money Helper. In addition, we’re making receiving guidance a normal part of the process when savers seek to access their defined contribution occupational pension.
“Alongside the industry, we’re investing in simpler statements and pensions dashboards to help make it easier for people to access and make sense of their pensions information to support their retirement planning.”
