A Guiding Hand: Improving access to pensions advice and guidance

This report calls on the Government to improve access to and quality of pensions advice and guidance to reduce the risk of financial harm caused by under-saving as well as sub-optimal decisions made at the point of decumulating a pension pot.

Although auto-enrolment has increased the rates of pensions participation, people remain far from being able to achieve their desired standard of later life living. We estimate that average pension pot under-provision stands at 58%, or £240,000. This amounts to a total under-provision of about £130bn per year among those reaching age 65.

Given that pensions are set to become more complex – due to the shift from defined benefit (DB) to defined contribution (DC) – and risks serious financial harm, our report has concluded with a set of policy recommendations for increasing use of advice and guidance to deliver better retirement outcomes for more people.

SMF’s Recommendations

  1. The Government needs to invest significant resource into a nationwide pensions awareness campaign about pensions.
  2. Pension Wise needs to be expanded, with a broader scope and new digital tools, including through clear visualisation tools that show potential impact of different options on their financial position in retirement.
  3. The FCA should provide clearer information on its definitions of “guidance” and “advice” – any review of definitions should involve extensive stakeholder engagement.
  4. Using guidance or advice should be made the default, given the complexity of decision-making at the point of accessing a pension pot.

Annuity income estimates based on an online pensions calculator for an individual with no underlying health conditions. Actual annuity income will depend on a wide range of factors including health, inclusion of beneficiaries and annuity provider. Drawdown estimates assume 2% annual pension pot returns in the pessimistic scenario, 4% returns in the moderate scenario and  6% in the optimistic scenario. The information provided by the online tool do not constitute financial advice about what to do with your pension – it is intended to provide illustrative insights into the likely challenges and trade-offs faced when reaching retirement.