Early in 2018, the Pensions Minister, Guy Opperman, put forward the idea of giving every person a simple financial health check somewhere around 'mid life'. This aimed to ensure each consumer was more aware of what they needed to do to improve their financial position in retirement.
The feedback on this concept has rightly been positive, and it is a much-needed initiative. While auto-enrolment has done a great job of getting a lot more people to save, research by the PLSA shows more than 90% do so by accepting the opt-in default and taking the default investment option. There is no real active engagement with their savings. In addition, the level of contributions under auto-enrolment are too low to create decent pensions for the majority, even after the automatic increases coming this year and next.
So, when a consumer finally receives the standard 'retirement pack' a few months before they are due to stop work, this is the first time they actually engage with their pension savings. At that point, many will face a combination of financial hardship and complex decisions on a subject they do not understand.
The 'MOT' seeks to help with this issue, by encouraging interest at an earlier stage. This ensures there is still time in a person's working life, to make a difference to their overall savings position. It is a very laudable aim. The industry needs the MOT to become an established norm, which everyone expects and is confident will happen, somewhat like having a cancer check at age 50. If it can be delivered effectively, it will be a great supplement to the Pensions Dashboard – which, itself, will provide much better data on which to base the MOT! Indeed, what we probably need is a financial health check every decade – at 30, 40, 50 and 60 – but that, maybe, is expecting too much in the first instance.
Yet the MOT is only a drop in the ocean in consumer engagement with finances. There are some shocking statistics in a recent report by AKG Actuaries, based on direct consumer research into guidance and advice. Only 28% of people expected to take advantage of the free Pension Wise guidance service available to today's retirees. 60% of people had never heard of it, or didn't know if they would use it. When asked about formal financial advice, 45% would not be willing to pay anything, and another 12% were prepared to pay only up to £100.
A widely-available savings MOT is a good mechanism to trigger more action on long-term savings but, equally, the industry needs to improve the perception of the value of advice and continue to find ways to deliver advice more cost effectively. 'Robo-' or 'automated' advice is surely the future here. Having seen a Google robot converse on a phone to book a hair appointment (without the stylist realising it was not a human), it cannot be long before much greater automation can be built into financial planning, enabling advisers to deliver their unique advice skills more efficiently at a price the average consumer can afford. That would certainly add great value to a financial MOT.