Would you trust a robot at retirement? financial futures

While the pension changes introduced in April are good news, without financial education and advice individuals are vulnerable, not just to the headline-grabbing scams but to paying unnecessary tax, using unsuitable assets for income in retirement, and ultimately making poor decisions.

The Pensions and Lifetime Savings Association has conducted research into over-55s' perspectives, which shows that people do need advice.

Over half of those who expressed a preference for how they were going to access their pension savings thought income drawdown would provide a guaranteed income, while almost a quarter thought drawdown was risk-free; a quarter of all respondents thought their whole pension was tax-free.

This lack of understanding is worrying, and if people truly believe drawdown will provide a guaranteed income, this is perhaps why only one in five say they are willing to pay for advice.


The government does provide a free guidance service, Pension Wise, to help with the pension changes, but it only looks at defined contribution (DC) pensions, not final salary pensions or other types of savings.

How to get the best out of Pension Wise

This is a far cry from a holistic approach where individuals think about a number of different savings and investments such as Isas, deposit accounts and shares.

My Pension Wise experience

One solution that has been discussed is the introduction of robo-advice. Robo-advice is really just a sophisticated self-selection tool. It isn't widely available at retirement yet, but may be soon.

Most robo-advisers offer a range of portfolios divided into risk levels. Investors are asked a series of questions to establish investment goals and attitudes to risk, and the system will then suggest investments that might be suitable for that individual.

There is a place for this approach for people who are saving and want to make simple investment choices. However, much hype surrounds the proliferation of robo-advice, and there are several reasons why those who are approaching retirement need to be wary.

Is it actual advice?

Many individuals struggle to distinguish between advice, in which a specific product may be recommended by a regulated adviser, and guidance, which will provide an explanation of types of product but not a specific recommendation.

It is important to realise that not all robo-advice is 'regulated advice', and be aware that not all decisions will come with the same consumer protection as regulated advice.

Not a holistic approach

Robo-advice may not review your current situation or consider your interlinked financial decisions. When you're planning for retirement, it is important to consider many things including your tax status, partner's assets, health, longevity, property, savings, inheritance etc.

For example, some may be better off spending their savings before touching their pension, but this advice would probably not be available from a robo-adviser.

The risk of mis-buying

Financial advisers are required to find out your financial situation and give you advice suitable to your circumstances. With robo-advisers, the onus is on the customer to interpret the questions correctly and then provide all the relevant information.

Many people bought the wrong annuities in the past because they didn't realise that this was one of the few occasions when admitting to having poor health or to being a smoker meant they would get more money.

Many, many, many questions

Retirement income planning requires a lot of questions to be answered. This can be a long process face to face, but it is the adviser's responsibility to get it right once they have established your circumstances.

After working your way through what can be a lengthy online questionnaire, are you going to be sure you have answered all the questions correctly?

More at stake at retirement

If your investment choices aren't quite right in your 20s, 30s or 40s, you still have time to try to take remedial action. However the implications of getting it wrong at retirement are potentially so much bigger.

Reassurance of expertise

When it comes to major life decisions how would you prefer to make these? Most people ask a joiner and plumber to fit their kitchen, a lawyer to defend them in court, and a midwife to deliver their babies; all are major life events with enormous consequences, just like retirement income planning.

Ongoing advice

Under the new pension rules, many are likely to need ongoing help with their finances into old age; while many will be computer literate, financial decisions become harder and often have emotional elements which robo-advice will struggle with.

The fees

Even with all these warnings, for some it will still come down to price - yet using robo-advice may not actually save any money and could even cost more!

With so many things to get right, preparation and taking time to make the right decisions is critical. Poorly thought out decisions can be very costly, so taking full regulated advice can save you money in the long run.

Jonathan Watts-Lay is a founding director of WEALTH at work.

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