Guiide to Launch First Mass-market, Guided Solution for Defined Contribution Savers at and Through Retirement

Retirement planning fintech Guiide is launching a unique new solution to the problem that has vexed savers and policy makers ever since the Pension Freedoms were announced ten years ago, this is:

“How to efficiently manage Defined Contribution Pensions in the run up to, at, then through the whole length of retirement.”

Guiide, alongside pension provider and investment manager partners, is launching the UK’s first guided retirement income solution.

This will be automatically tailored and personalised to each saver’s individual retirement plan, without needing to pay the cost of regulated financial advice.

Since the launch of Guiide four years ago and with the support of experienced pension industry professionals who shared the same ambition Guiide has attracted around ten thousands pension savers each month. Hundreds of thousands in total have used it.

These savers are typically over fifty and have pots of around £250,000 or less. Enough for a long term drawdown plan but not the level of pot sizes where advice is easy to get. They are therefore looking for free help to build a plan designed to last a lifetime.

Without taking significant investment, Guiide has been funded mainly by licensing custom versions of its tech to various entities within the industry. This has allowed the consumer site to remain free. Upgrades wanted in licensed versions can also then be deployed to the free site where appropriate.

Building on this Guiide is now announcing new developments and integrations to further help registered users who build a plan with them. .

This seems perfect timing as the in-drawdown market is expected to triple from £200bn to £600bn over the next decade with less and less of those savers having any form of guaranteed income beyond the State Pension..

Current options

Currently savers nearing retirement have been left with two basic options:

Either they pay for regulated financial advice, which is the premium option but isn’t cheap; or they go it alone and manage everything themselves.

Whilst some people also make use of the free and helpful Government backed guidance service, Pension Wise, to help them with the basics, most don’t.

Advice costs are good value for money, but many don’t see it this way with retirement advice typically costing at least £1,000 at retirement and around 2% of your pension pot for the advice plus underlying products and investments each year through retirement.

We know that when facing one of the most challenging financial planning decisions around, most people don’t take advice (as only 32% do) and the percentage of non-advised appears to be rising slowly over time.

Breaking this down by the route taken, just over a quarter of people buying an annuity pay for advice (27%); and just over half of people (52%) using drawdown do so.

For more data, see below some extracts from the latest FCA Retirement Income Market Data.

The Defined Contribution retirement income challenges

George Osborne’s Pension Freedoms were immensely popular when first announced and savers definitely don’t want to go back to a world where they are forced to buy an annuity.

However, they do face some tough financial planning decisions:

1. How much to take each year without running out – this is even harder when you consider not just the pension pots, but all other savings and income, state pension, part time work, your partner’s income etc.
2. How long you will live and therefore need the money for – we may know how long 1000 people will live for on average, but for each individual, no one knows
3. Where to invest your money – most default retirement funds are fine when building up money, but in the few years before retirement and the period just after retirement, they are far from ideal for many
4. How to reduce tax – pension income is taxable, taking income the wrong way can lead to a much higher tax bill than necessary
5. Which provider to use – most people will no idea how to compare charges and benefits of different providers

What’s more, circumstances change: people’s health; spending needs; dependents’ income and needs; tax rules; investment returns…all of these are unpredictable. This means retirement plans need to be monitored and adjusted on an ongoing basis for many years.

The available data on the retirement income market suggests many people may be making short-term decisions when withdrawing money from their pots. This could be storing up problems for the decades to come as retirees find themselves outliving their savings.

Others are simply too worried to see their pots fall in value and therefore live a much more frugal life than is needed.

What are Guiide launching?

Guiides existing retirement planner has been very well received by consumers.

This enables savers to build a plan seeing how much money to withdraw as flexible drawdown income from pension and savings pots alongside everything else they have to to get the total income they need without running out. This can also incorporate some guaranteed annuity income and different choices around tax free cash.

This free planner can be accessed here

Now, Guiide have developed a solution integrated with these plans with a pension provider and investment manager which it is launching shortly. This is a third option which is a middle ground, a guided retirement option which offers significantly more support than the DIY option at a much lower cost than full ongoing regulated advice.

This enables savers to not only build, test and track their plans but also to actually execute and monitor them over time. It is like a holding hand up to and through retirement.

They can do this by sharing the calculated payments from the Guiide plan to a low-cost pension provider. They then simply pay these like a wage in retirement.

The calculated payments and a length of income matching, selected by the saver, are also provided to an investment manager. The savers pension pot is then split into three default tailored funds in specific allocations based on the savers actual plan payments and needs.

By launch, savers will be able to use this guided option on a single plan basis or incorporate partners income also to have an overall household plan.

The regulatory context

Ever since the announcement of Pension Freedoms in March 2014, regulators have worked hard to keep pace with the changing retirement income market. There has been a series of interventions, all intended to help guide Defined Contribution pension savers towards making more suitable retirement income decisions:

• Pension Wise and the ‘nudge’ towards using it
• Mandatory risk warnings for non-advised income withdrawals
• Investment pathways
• The DWP’s default decumulation policy work
• The FCA’s Consumer Duty and Advice / Guidance Boundary work

The direction of travel is clear: whilst pension savers should be free to choose how they draw on their retirement savings, there is a legitimate public policy interest in guiding them towards sustainable solutions that are likely to meet their needs through the full duration of their retirement and providing an optimal outcome.