The issue of trust in the pension sector
The opinions of experts are held in very high regard by the UK population.
The coronavirus pandemic certainly highlights this, with expert opinions heavily influencing the actions of the Government, and the public. Indeed, such confidence in experts can be justified. After all, these experts are highly qualified and knowledgeable in their field. Thus, they perfectly placed to make judgements about how the country should react to a highly infectious virus.
However, experts in other industries do not always have such trust bestowed upon them; most notably, financial advisers within the pension industry.
Independent financial advisers are highly qualified and, more importantly, regulated by the Financial Conduct Authority. Yet, people remain reluctant to seek advice when making major decisions about their retirement finances.
The question, therefore, is why don’t savers trust financial advisers?
Public perceptions of the sector
In October, the Department of Work and Pensions (DWP) conducted in depth qualitative research into how people manage their retirement finances. The research revealed that a concerning portion of participants were making major financial decisions without seeking financial advice, with many citing mistrust of financial advisers and the pension industry as their rationale for doing so.
The root of this mistrust seems to stem from participants believing that advisers offer inaccurate forecasts for retirement income, or unreliable guidance for their pension investments; many felt that advisers were solely trying to sell products.
Additionally, the report stated that many prospective participants were reluctant to take part in the study, assuming it to be a scam.
These findings expose a systemic mistrust of advisers and the pension sector as a whole.
Is this mistrust warranted?
Unfortunately, there are instances that appear to justify such mistrust.
The industry also has a severe problem with pension scams. Indeed, a previous survey of over 2,000 UK consumers commissioned by My Pension Expert, revealed that over one in seven (15%) of UK adults had been targeted by fraudsters since the beginning of 2020. Worse still, over a tenth (11%) have lost money to a pension scam in this time.
Some retirement finance providers do little to help the sectors’ reputation. Earlier this year, an article in The Times revealed that some life companies were paying sales representatives incredibly high commissions to sell annuities to clients rather than offering tailored advice, with commission left undisclosed to clients until the last moment.
Of course, not all pension providers and life companies undertake such tactics. However, such instances cast a shadow over the sector, consequently corroding public trust in advisers.
Although, failing to seek financial advice could cause great damage to people’s future finances. Naturally, the sector must take action to ensure that this does not happen.
Next steps for the pension sector
It is vital that the sector starts putting consumers first; and improving transparency will be vital to this.
For example, savers seeking advice must be made aware of the potential costs upfront, rather than being kept in the dark until the last moment. This should be the case in all circumstances, regardless of whether someone is speaking to a sales representative, or an independent financial adviser. Eliminating the secrecy surrounding consultation costs will be a positive step forward in restoring public trust in the sector.
Steps must also be taken to stop scammers. This week, The Pension Regulator launched its campaign to urge providers to offer more information about how clients can spot potential fraudsters. Indeed, if more providers commit to this initiative, it will certainly help to reassure people that they are the industry’s priority.
Restoring trust in the sector will take time, but it is an undeniable necessity. Without taking steps to improve the situation, more and more savers could seriously impede their financial futures by taking on major decisions without seeking independent financial advice.