W ell, things have moved on since chancellor George Osborne gave a guarantee that all pensioners would receive advice at retirement.
First ‘advice’ became ‘guidance’ to ensure it is differentiated from regulated advice, and now many in the industry feel strongly that product providers would not be the best source of this ‘guidance’.
The Pensions Advisory Service (TPAS) and/or Money Advice Service (MAS) seem to be the emerging solution to the challenge of addressing the requirements of some 650,000 individuals who retire each year.
The guidance required will probably be delivered online and by voice, or even using online audiovisual content. The number of options which need to be considered are intimidating, and should be a concern for all.
Taking cash, ‘rolling over’ (as the US calls remaining invested), drawing down, taking an annuity, and pensioner bonds or a combination are the obvious options.
Experience from Australia and the US seem to indicate that many will take the simple cash option – hopefully to pay down debt. Remarkably few in those countries seem to be motivated to take an annuity; I’m not sure why.
The perception seems to be that an annuity is poor value. This may be temporary, reflecting poor sovereign debt yields, but there does appear to be a consumer expectation that they will die sooner than they actually will, which may be the main driver of the perception of poor value.
Let’s assume that TPAS and/or MAS are the solution to uniform guidance. The issue then becomes one of how the ‘considerations’ prompted by guidance actually result in timely and effective action.
Having spoken to the provider of guidance (say TPAS/MAS), what will consumers do? What will providers be allowed to do in response? If this process is to be effective, the guidance should also have a call to action for each route. For example, the guidance could include: “If you opt for an annuity you should look at the following annuity bureaux”.
If the retiree decides, however, to remain invested and add further contributions, what then?
Would the guidance be to speak to their current provider, go to a direct provider or to seek advice? I suppose all options will be offered for consideration.
The real problem is the result may be that consumers just do nothing, and that carries a significant risk of generating a poor outcome. Even worse would be the tendency for consumers to just ‘take the cash’.
Another potentially undesirable outcome has been the speculation that cash will be directed at the buy-to-let market, with the likely consequence for property prices.
What is clear is that much more work needs to be done by the industry and all involved before we can know what the outcome will be for guaranteed guidance. Only then can any processes and propositions be developed by potential providers.
Development of new propositions takes time. Any anticipation of what might be decided carries the considerable risk of being wrong-footed. The unfortunate result of this is that some providers may struggle to be ready for April 2015.
Hugo Thorman is chief executive at Ascentric
