Guidance or advice offered to consumers through providers following the radical shake-up of pensions will not in reality be the “free” service pledged by the government, the director general of the Association of British Insurers told MPs today.
In the Budget, chancellor George Osborne said that pension providers will have to provide “face-to-face advice” to all retirees. The consultation that followed qualified that individuals approaching retirement will receive “free and impartial face-to-face guidance” .
It also clarified that providers will be required to facilitate this advice, with a £20m fund provided by the government to help start the process. The Financial Conduct Authority is working on the parameters of the guidance that will be received.
However, giving evidence today (8 April) to the Treasury Select Committee on the impact of the Budget, Otto Thoresen said guidance would only be “free to the consumer in the sense that they won’t be writing out a cheque and it will be paid for...by the industry”.
However, he added: “Actually a contract-based scheme ran by insurers is one thing but a trust based scheme will have to find resources and it will be paid for... by the consumer in the end”.
The statement is similar in nature to the debates that preceded the Retail Distribution Review, which removed commission as a way of removing bias and making clear to consumers that advice they receive is not ‘free’.
Pat McFadden, Labour MP for Wolverhampton South East, said that currently individuals pay around 2 per cent, which is taken from an annuity for “semi-automatic” advice.
For the average consumer this would cost £680, Mr McFadden said, questioning how much costs would increase for “face-to-face advice” when other factors need to be taken into consideration such as long-term care, mortgages and debts.
Mr Thorosen said that the types of customers talked about need to be segmented into those that will be affected by next year’s new regulations and those that will retire in 20 years time who have a “successful” pension savings track record.
He said some will have small pots of £30,000 or less and for these individuals “relatively small guidance will be needed as the better option is fairly obvious”, adding: “I don’t think there’s a need for face to face for everyone.”
When asked how much it would to develop face to face guidance, Mr Thorosen said: “It depends on how you define guidance and how far it will go. [It would be] wrong to estimate how much guidance will cost.”
Another MP said that PricewaterhouseCoopers said that it would cost £120m to provide face to face guidance, and questioned if this was accurate.
Mr Thorosen said “I haven’t studied them in depth but if you deliver every single piece on a face to face basis, it does not seem an unreasonable estimate.”
He added that guidance could be “taking people through the questions they should ask themselves”, which is “almost an extension of customer service”.
Going onto ‘impartial’ advice, Mr McFadden questioned how someone who has a policy with an insurer can receive impartial advice from that insurer.
His question echoed remarks of Royal London chief executive Phil Loney, who said last week that retirement advice provision should not be put at the door of providers and that regulators needed to “come together to develop a new form of advice which is fit for purpose for customers”.
Mr Thorosen said: “We were discussing this with our members. I really do believe there are opportunities for the industry to have a positive future in this market and impartiality is critical and let’s see how we can move through it.
“And if developed through a third party, bringing that together in an orderly way would be challenging.”
