The ‘guidance guarantee’ should be funded by a levy across the financial services sector to make sure those with the smallest pots are not forced to pay disproportionate costs, the National Employment Savings Trust has proposed.
In its response to the government’s consultation on freedom and choice in pensions, Nest warned that the immediate ‘guidance guarantee’ challenge is to get a model up and running for April 2015 “that is proportionate and cost-effective”.
The guidance should be delivered independent of product providers and must not result in those with the smallest funds, who have also got the simplest guidance needs, cross-subsidising those with larger funds and more demands, Nest’s response said.
This refers to the consensus across the sector that if providers are ultimately asked to deliver the service, as mooted at the Budget, then while it may be free at the point of use the cost is likely to filter through into savers’ premiums.
Giving evidence to the Treasury Select Committee last month, Otto Thoresen, director-general of the Association of British Insurers, said guidance would only be “free to the consumer in the sense that they won’t be writing out a cheque” but that schemes will “have to find resources and it will be paid for... by the consumer in the end”.
Nest is not the first to suggest an industry fee. Andrew Tully, pensions technical manager at MGM Advantage, previously told FTAdviser that the “cost may be picked up by an industry levy”.
Mr Tully similarly argued the money should be used to enable independent bodies to deliver the service. The Association of Professional Financial Advisers, Royal London, Legal and General and Just Retirement, among others, have all called for guidance to be independent of providers.
Tim Jones, Nest’s chief executive, said: “Our main concern is meeting the needs of these new savers in a way that offers value for money and won’t eat into their pots, which in the short term are likely to be relatively small.
“We believe the most appropriate short term solution is a tightly defined guidance guarantee delivered by an independent third party. This should be funded by a levy across the financial services sector to make sure those with the smallest pots don’t shoulder disproportionate costs.
“For the longer term, we’ll be considering carefully how best to engage and support our members to reflect their needs.”
Nest is planning to consult in the autumn on what it can to to assist its membership on the run-up to and through retirement, “such as through the provision of different investment journeys and post-retirement vehicles”.
Nest added that the purpose of this is to see if Nest can act as an “informed institutional customer of significant scale in the wholesale decumulation market”.