The unique opportunity auto-enrolment presents

Robin Hames, head of technical, marketing and research at Bluefin Personal Consulting, reveals why the changing world of pensions will open up new doors for advisers.

The introduction of auto-enrolment offers a great opportunity for the next generation to get on the savings ladder. But what about those nearing retirement or who are already in existing pension schemes but not yet making informed decisions?

The simple problem is that there is not enough advice available for those saving for retirement or those moving into the retirement stage.

Challenging times

By the end of this year two million people will have reached retirement age since the start of 2010. There will be a 22% increase in those reaching the milestone between last year and this alone as the baby boomer generation hits retirement.

This presents a real challenge for the pensions industry – providers, advisers and also employers.

Research previously carried out by the Association of IFAs suggested that employers are one of the most trusted sources of information on pension issues for their employees.

Employers, with their unique relationship of trust with employees, are undoubtedly in a strong position to support the education of consumers. However, they are also unsurprisingly always concerned not to stray into territory that could easily be perceived as advice. There is a tension here that needs greater clarity from the regulator if larger employers are to be engaged in the process.

While automatic enrolment will increase participation, this will still be some time off. But there are simple first steps that can be taken to engage members before its introduction. There is no excuse in the modern age not to offer a simple online joining process. And there is clear evidence that the simpler you make the process, the greater the take-up is.

Visual

Once employees are in, there is equally no excuse for not providing members with daily valuations and simple tools that demonstrate the likely future benefits with visual outputs rather than relying on figures alone to tell their story.

If the general message is that people need to take greater control of their finances and take on more responsibility for the financial future then we need to help them do that. You cannot just present them with an information vacuum and say “Go on then, make your decision.”

This should also make it simpler for people to see what benefit they can get from actions such as sacrificing more of their initial salary or taking alternative investment decisions.

Advice is also vital to help prepare people for retirement and the decisions they will have to make. Attention on the retirement market has tended to focus on single issues, such as the open market option or the equity release sales process, rather than on the holistic approach to financial planning through retirement.

The one-off issue of annuitisation may not be attractive to most advisers, but with people living longer in retirement there are real opportunities in this market.

Just as marriage, the purchase of a new home and the birth of a child are all life events that necessitate a financial decision, so the continued life events of the ‘boomers’ in retirement will require them to make financial choices as they travel through later life.

When we look at patterns of leisure and consumption in retirement, we see retirees in a state of transition rather than stagnation, as they move from work to retirement, with an emphasis on maintaining positive lifestyles.

There is clearly an educational role in developing this business opportunity. Research suggests people underestimate the length of time they will live in retirement. They also have little recognition of the finances they will need to live the life they wish for.

If advisers can help individuals consider these issues they can also advise on how to meet their medium to long-term objectives. But there must be a clear business objective and opportunity here – advisers cannot be expected to play a government education role.

Advisers will no doubt have their own many and varied opinions on auto-enrolment. But its introduction offers a unique opportunity to engage with employers and employees on savings and retirement issues. It is something we cannot ignore.