2plan's Smallwood on pensions advice

Chris Smallwood, CEO of 2plan Wealth Management, says more must be done to ensure pension advice suitability.

Whilst many would claim that the biggest domestic news at the moment is the arrival of the 2010 Election swingometers, back in ‘adviser land’ the reality is that something much more serious is brewing.

Regardless of which political party wins out in May, the incumbent will have to accept that a crisis exists that is likely to affect millions of UK families in the years to come and it sadly seems to be far from the agenda of any doorstep campaigner.

In the past week or so we have been told that not one of the 22 firms identified by the FSA in 2008 as the worst performers for pension switching advice has improved in the interim.

So, despite all the promises of what we had hoped would represent an upbeat and positive thematic review into the suitability of pension advice, the FSA has now revealed firms that were providing unsuitable guidance 18 months ago have taken “little or no” remedial action. This includes a total of 22 firms, 12 of which are small firms and 10 are ‘relationship managed’, not to mention two banks.

To put this into context, we must take into account the macro situation. After a brief look at the raw data, one starts to understand the enormity of the issue. The past decade has seen an alarming increase in the number of people with no pension savings at all. Figures from the Office for National Statistics show the share of the private sector workforce without any coverage was 62.6% in 2008, up from 54.7% in 1999.

Adding to this is another important factor. As we move firmly into a new ‘longevity’ regime, the increase in the minimum retirement age to 55 from 50 has now become reality for the vast majority of individuals. While the change is hardly a surprise, with plenty of advance warnings given and a fair amount of marketing ‘hype’, the industry still seems to be largely ill prepared for the consequences

So where does this leave us? We have a growing population of millions of individuals unable to support themselves and their family in retirement. We have a long-term care crisis forcing many children to have to support elderly relatives with little or no state help. And we have an industry of professional, now ‘even more qualified and highly regulated’ advisers, many of whom are doing little or nothing to improve the standards of advice and restore the much needed confidence in our ability to help.

Further to this, we have a Regulator trying to monitor the activities of thousands of small IFA firms for whom pension switching remains a lucrative and often far too easily overlooked business activity. This simply has to change.

We all know that, in reality, the need to create better capitalised and financially secure distributors makes a great deal of sense; not just to protect to the client, but vitally the industry’s already severely damaged reputation.

I have highlighted before the great dangers that we all face from the problems of firms in the retirement planning market continuing to operate ‘under the radar’. Sadly though, this advice appears to fall on deaf ears.

So while the big issue is that the UK is increasingly facing a pension funding crisis, for the adviser sector and the long term respect and integrity of the ‘IFA brand’, surely something must be urgently done to ensure retirement planning is taken much more seriously.

Those firms that continue to missell, mislead and put our industry in danger of further reputational damage will not be missed, but sadly the damage they have caused will take much effort to repair.