Scottish firms see value of financial guidance in workplace

The latest survey of the YouGov 250 Club of major UK employers, for JLT Employee Benefits, found a greater willingness among Scottish employers to facilitate pre-retirement advice for their workforces. Firms in Scotland are also keener to take responsibility for wider financial guidance for all employees, by providing a workplace-based service. Around 50 per cent of firms were in support of the principle against 30 per cent UK-wide.

The survey found that since April's radical changes which saw pensions become potential 'bank accounts' for retirees, only around a third of UK firms have reported an increase in inquiries from staff about pensions advice - but in Scotland the proportion is almost 50 per cent.

It comes amid claims that the cost of advice is among factors preventing up to six million people from potentially accessing their pensions.

Chancellor George Osborne said this week that 60,000 had accessed their pension savings since 6 April, with £1 billion being withdrawn, but there were "clearly concerns that some companies are not doing their part to make those freedoms available, and we are investigating how to remove barriers".

The main barriers are complex insurance contracts with restrictions or exit fees, and the requirement to take specialist advice on all pensions above £30,000 which have valuable guarantees.

Legal & General has now called on the government to scrap that requirement. Darren Philp, director at The People's Pension, said the regulator had "made it more difficult for people to access small pots and is tying providers up in unnecessary bureaucracy and red tape".

Stephen Martin, head of Brewin Dolphin in Glasgow, said: "Some of the reluctance to transfer may be down to sensible waiting and planning on behalf of savers. However, most still do not understand the options open to them or the tax implications of taking drawdown from their pension."

The Association of British Insurers rejected any suggestions of unnecessary obstacles and said nine out of 10 customers did not face exit fees, which had been put in place in older contracts "to cover the costs of setting up the pension, particularly commission".

On an analysis claiming that a quarter of the £1bn had been splashed on holidays and cars, Iain McMath, chief executive of Sodexo Benefits and Rewards Services, said: "A huge amount of money has been spent on impulse purchases and luxury items, putting the financial security of many Britons in jeopardy. To help employees over come this, employers could offer support in terms of financial education or budgeting tools which will help employees manage their money."

All members of defined contribution pension schemes now have the right to free guidance from the government's Pension Wise service at the point of retirement. Anyone wanting to transfer a final salary pension above £30,000 has to prove they have had financial advice.

Malcolm Paul, chairman of JLT in Scotland, said employers North of the Border were more alive to the issues. "Our survey ties in with what we have seen, there is still this paternalism in Scottish companies and a desire to look after employees. There is also a recognition that the government's Pension Wise service comes too late."

John Wilson, national head of research for JLT which employs 200 in Edinburgh said: "What is the point of getting advice at the point of retirement that you haven't saved enough? The more fundamental issue is that people want the outcome they had hoped for, which means you need to speak to them long before retirement and help them plan accordingly. Pension Wise won't do that, but it does seem as though there is some appetite from employers to maybe fill that gap."

The survey also found a marked difference in attitudes to the pension changes. Whereas employers UK-wide generally agreed that allowing people to cash in their pensions would make pension saving more attractive in future, Scottish firms disagreed. Two out of three firms in Scotland also disagreed that the new regime would make people better off financially in retirement - in direct contrast to the UK-wide findings.

Those who can access their pension are most likely to choose a flexible drawdown option, the survey found, with only one employer in six expecting people to opt for converting their fund into instant cash.

Scottish Widows has reported that half of all customers are now requesting encashment of their pension, compared with almost three-quarters in the early weeks of the new regime. However 85 per cent of the requests were for pensions worth less than £30,000.

Mr Wilson commented that the average DC (defined contribution) pension pot was only around £35,000, with the median (halfway number) only £25,000. "You can see the attraction of taking these amounts as a lump sum, but we are now becoming a DC dependent nation. As people start to have much more meaningful amounts in their DC pension, they will take a lot more time in making their decisions and are less likely to rush in."

Andrew Tully, pensions technical director at MGM Advantage, said: "My fear is many people will revert to their pension company and not shop around for either the best solution or the best deal. We need to continue to work hard to promote the benefits of people actually taking the next step and getting proper regulated financial advice."