The average cost of providing the ‘guidance guarantee’ for those approaching retirement will be £36 per person, equating to a total bill for the industry of £7.2m, data from the Association of British Insurers has revealed.
The ABI has calculated a range of scenarios based on a cost per person of between £25 and £60, depending on uptake and the scale of the shift from more direct contact to online delivery, which the ABI states is necessary for the proposals to be successful.
The first scenario, which is the ABI’s “core” prediction, is based on a gradual shift from face-to-face and telephone-based to online from 2016.
According to the ABI figures, on this basis if there is a “high” uptake of 375,000 people taking up the guidance guarantee, as promised in the Budget, this would cost a total of £12.8m, working out at £34 per person based on delivery via the Money Advice Service.
If there was a medium take-up of 200,000 people this could cost a total of £7.2m at £36 per person. A low uptake of around 25,000 people would cost almost double at around £60 a person, with a total bill of £1.5m.
The second scenario is based on a “stronger shift” to online from day one. The ABI said using the same figures for high, medium and low uptake, the respective cost would be £9.4m (£25 per customer), £5.4m (£27 per person) and £1.3m (£51 per person).
The ABI added that in future years, the cost can be expected to reduce based on “steady state volumes”, in line with a gradual shift of customers from phone/face-to-face to online.
In responses to the Treasury’s consultation, many providers and trade bodies have suggested the Pensions Advisory Service or the Money Advice Service are well-placed to provide the guidance. Most have suggested funded this via a levy on pension providers.
By comparison, the existing TPAS experience costs £43 per person for “primarily phone-based guidance” and the existing Mas service costs £70 per consumer for face-to-face guidance, ABI analysis says.
The ABI’s evidence also supports notions that the ‘guidance guarantee’ can only be affordably delivered via technology.
Earlier this week, Aegon said a “digital delivery” model that offered savers “standardised” outcomes based on certain financial attributes and risk assessment responses is a better way to deliver the pledged ‘guidance guarantee’.
Tom McPhail, head of pensions research at Hargreaves Lansdown, agrees the guidance will be mostly technology-based and envisages something akin to decision trees, which are often used in non-advised services, but are often the subject of debate over where the line into advice falls.
He previously said:“The sort of areas the guidance will have to touch on include health, assets, liabilities, dependents, risk tolerance etc.”