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Engagement and education key to good retirement outcomes

10 September 2018

Wealth management group Quilter has called for the government to focus on engagement and education in addition to transparency in its latest inquiry into pension costs and transparency.

In response to the Treasury Committee’s inquiry, Quilter said the best way for people to achieve value for money is through face-to-face financial advice, with its own research highlighting that advised clients are more knowledgeable and engaged.

Quilter’s annual research of 50-75 years old consistently showed that those retirees who had seen an adviser, even just once, had on average £7,000 more per year in retirement.

While Quilter conceded that perception of value differs from person to person, 82% of those it surveyed found the advice they received “valuable” and 62% of customers reported themselves as “extremely satisfied” with the advice they received.

Jon Greer, head of retirement policy, Quilter, said that while a combination of auto-enrolment and Independent Governance Committees meant a structure is in place to help people grow their pension pots, customer engagement and education remains an issue among workplace pensions.

He said: “Auto-enrolment operates on inertia, not engagement, and whilst it has led to large gains in pension participation the same cannot be said about the size of contributions.

“In 2017 around 45% of private sector employees with defined contribution pension schemes were contributing less than 1% of pensionable earnings, and only around one in three employees were contributing 3% or more, according to the ONS. Over the next few years auto-increases will lead to a rise in the average amount employees place in pensions. However, we cannot be complacent.  The Government needs to work more closely with employers, as they are best positioned to encourage employee engagement.”

According to Greer, it’s crucial the government gives sufficient funding to the Single Financial Guidance Body so people know where and how they can receive the help they need with pensions and early enough to make a difference to their retirement journey. However, with 750,000 retiring each year, Greer said demand for its services means the SFGB and government should work together to signpost when and how people can get effective and appropriate financial advice.

Dean Bowden, chief commercial officer, Quilter Investment, warned that where levels of awareness and engagement with pensions are lower, there is the risk of sub-optimal outcomes.

He commented: “There can be a temptation to assume that lower costs equals a better deal and that retirees may subsequently overlook the value of actively managed solutions, particularly in decumulation where we know active defence can be so important.

“Similarly, evidence shows that non-advised customers may be at risk of seeing their real terms spending power depreciate in retirement where they hold their pot in cash and we urge policymakers to focus on promoting engagement and education in order to help consumers make informed choices about their retirement investment choices.”

In its response to the inquiry, Quilter also said technology would continue to play a crucial role in helping to deliver education and stimulating engagement. It said the government and pensions industry need to do all they can to utilise technology and make it widely accessible, including encouraging and promoting the creation of the pensions dashboard.