By Simon Jessop and Carolyn Cohn
LONDON (Reuters) - A lack of specialist advice to all but the well-off leaves a plethora of pitfalls lying in wait for the millions of British pensioners looking forward to their impending freedom to choose where to invest their retirement savings.
The British government has introduced a series of changes to the pensions and savings industry in recent months to give people more control over their money, including higher thresholds for tax-free savings and the removal of the obligation to buy an annuity at retirement to guarantee an income for life.
Referred to as "pension freedom", the latter rule change goes live on April 6 and will allow billions of pounds previously funnelled into life insurers' annuity products to find a home in a other investments.
Though widely viewed as an attempt to woo the "the grey vote" ahead of what is expected to be a closely fought national election in May, the measure has also been welcomed by the pension industry and politicians for offering savers alternatives to the low annuity interest rates of recent years.
Investment experts, however, have warned of a worrying gap in the provision of financial advice, which could endanger pensioners' life savings.
Tighter regulation of the financial advice sector introduced two years ago drove many independent advisers to leave the industry and prompted some banks to increase the level of money an investor needs before they will provide advice.
The number of financial advisers had dropped to 23,000 at the end of 2014, from more than 27,000 in 2009, according to the Association of Professional Financial Advisers (APFA).
ADVICE AT A PRICE
Small investors had previously been able to gain free advice, after a fashion, through commission-based sales by advisers. But with that avenue now banned to reduce conflicts of interest, those unwilling or unable to pay are left to their own devices.
"Customers below a certain income or asset level cannot get advice," said Henry Cobbe, managing director of funds specialist BirthStar.
Research by Fundscape last year showed that many advisers had settled on 100,000 pounds ($148,000) as a minimum for providing advice, while research group Mintel said the availability of advice has declined since the changes in financial advice rules, especially for customers with less than 20,000 pounds to invest.
The 100,000 pound level is some way above the average pension pot of a little more than 60,000 pounds, numbers from technology and data firm IRESS show.
To combat that, the government has launched Pension Wise to provide impartial face-to-face guidance from the independent Citizens Advice group, by telephone through the Pensions Advisory Service or online through a government website, paid for by a levy on financial companies.
Though the scheme offers some guidance on estimating an individual's total pension wealth and how to guard against higher tax payments, Pension Wise will not give product advice.
Standard Life 's (L:SL) February acquisition of an independent financial adviser (IFA), through which clients can access both Standard Life funds and those of competitors, suggests that some of the slack might be picked up by insurers looking to counter the expected drop in annuity sales.
SCAM WARNINGS
It is to be hoped that savers will heed the warnings of the Financial Conduct Authority and others about being targeted by investment scams.
"Wherever there is money around, the con-artists will come," said Richard Parkin, head of retirement at Fidelity Worldwide Investment.
But the biggest, if less sinister, danger from the lack of specialist advice could be from more mundane mistakes.
"There are two big risks: that in the short-term people will pay too much tax and that of running out of money," said Chris Hannant, director general of APFA.
One potential pitfall is the risk of withdrawing a sum that lifts you into a higher income tax bracket, said Anasuya Iyer, insurance analyst at Jefferies.
Then there's the risk of running out of money. That may seem a dim and distant prospect when pensioners first exercise their new-found freedom, but recent research shows it could become a problem for significant numbers.
Of the half a million people or so free to avoid annuity purchase from April 6, about 12 percent will take the money as cash, according to research commissioned by fund supermarket Hargreaves Lansdown (LONDON:HRGV).
In future years, about 320,000 pensioners a year will have the choice to ditch annuity purchases, the Association of British Insurers said.
And they could be joined by up to five million people already in retirement, given a new government plan to create a second-hand annuities market in which they would be able to sell their policies.