The Retail Distribution Review and small pension pots

My report for ILC-UK on the potential impact of the Retail Distribution Review on pensions advice.

Ensuring people with small pension pots have access to advice after the introduction of the Retail Distribution Review. The report explores the following:

  • What might the unintended consequences of the RDR be in terms of advice?
  • Will the RDR impact on people’s ability to shop around?
  • How many independent will stay in the profession following the RDR?
  • What kinds of risks are faced by people with small pension pots as a result of the RDR?
  • Is there a role for simpler financial products, and generic advice?

The introduction of the Retail Distribution Review (RDR) comes as we are seeing significant growth in the number of people in ‘defined contribution’ pension schemes, meaning that more people will be required to make investment and decumulation decisions for themselves, just as one of the largest transformations in the regulatory environment for financial advice gets underway.

To establish the quality and independence of financial advice, RDR changes will mean that independent financial advisers will have to charge clients directly for the provision of advice, rather than receive commission from product providers. While ostensibly laudable, the public appears reluctant to pay up-front fees for financial advice. Furthermore, new professional standards may mean that the cost of providing advice becomes prohibitive for many advisers.

The ILC-UK report is concerned in particular with the implications of the RDR for people with small pension pots. We know that people with small pension pots are less likely to seek financial advice, therefore reducing the likelihood they will maximise their retirement income – if costs of advice increase, this trend is likely to intensify.

Ensuring people with small pension pots have access to advice after the introduction of the Retail Distribution Review. The report explores the following:

  • What might the unintended consequences of the RDR be in terms of advice?
  • Will the RDR impact on people’s ability to shop around?
  • How many independent will stay in the profession following the RDR?
  • What kinds of risks are faced by people with small pension pots as a result of the RDR?
  • Is there a role for simpler financial products, and generic advice?

The introduction of the Retail Distribution Review (RDR) comes as we are seeing significant growth in the number of people in ‘defined contribution’ pension schemes, meaning that more people will be required to make investment and decumulation decisions for themselves, just as one of the largest transformations in the regulatory environment for financial advice gets underway.

To establish the quality and independence of financial advice, RDR changes will mean that independent financial advisers will have to charge clients directly for the provision of advice, rather than receive commission from product providers. While ostensibly laudable, the public appears reluctant to pay up-front fees for financial advice. Furthermore, new professional standards may mean that the cost of providing advice becomes prohibitive for many advisers.

The ILC-UK report is concerned in particular with the implications of the RDR for people with small pension pots. We know that people with small pension pots are less likely to seek financial advice, therefore reducing the likelihood they will maximise their retirement income – if costs of advice increase, this trend is likely to intensify.

Click here to access the full report.

Image: Jason Rogers

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