At the same time as the Australian financial services industry contemplates the Government’s Retirement Income Review (RIR) the UK financial services industry is facing similar decisions in the context of the impact of the COVID-19 pandemic on the retirement income market.
A report developed by Deloitte’s Centre for Regulatory Strategy has looked at barriers to innovation in the retirement market following the introduction of pension freedoms and has come up with an analysis very similar to that prevailing in Australia, but emphasising the value of people receiving financial advice.
It said that the introduction of pension freedoms in 2015, coupled with the growth in defined contribution pensions had, on the face of it, crated a compelling market need for product innovation in the UK retirement sector – something which had been heightened by the pandemic.
One of the key findings of the Deloitte report is that there is a need to consider wealth as a whole rather than pensions in isolated in “both advised and non-advised journeys”.
“In particular, any comparison between the pension wealth gap and wealth held by many in property highlights a greater potential role for property wealth to support retirement income,” it said.
“This is likely to create a wider role for specific uses of equity release. It follows that that there would be benefits in the equity release and pension markets operating as a more coherent retirement income market, both within the industry and at a regulatory level.”
The Deloitte report said that it was generally accepted that there was an “advice gap” in the market.
“This advice gap is driven by a number of factors, including access (and consumer engagement), cost and the actual and perceived quality of advice,” it said.
“As a result, consumers are often making complex decisions on a non-advised basis. As consumers tend to follow the path of least resistance at retirement, there is a substantial risk that many of these decisions may prove to be sub-optimal for the individual.”