While industry commentators have praised the fact that the ‘guidance guarantee’ is going to be offloaded to independent organsations rather than providers, questions have been raised as to what the ‘guarantee’ can actually achieve.
Today (21 July), the Treasury published its response to the Budget at-retirement consultation, revealing that The Money Advice Service and The Pensions Advisory Service, as well as other independent organisations, will deliver the guidance guarantee.
The government also announced that from 2028 it will increase the minimum age at which people can access their pension savings from 55 to 57.
The Financial Conduct Authority also published a consultation paper on its responsibilities over the Guidance Service, including proposals for an industry levy for those involved in pensions, including providers and advisers, to fund the guarantee.
Andrew Tyrie, chairman of the Treasury Select Committee, said that it is a “step forward” that independent bodies will be providing the guarantee but expressed dismay that the Money Advice Service will play a part in it.
He said: “It is concerning that the Mas may play a part in the delivery of the guidance.
“The committee has expressed serious concerns about the ability of the Mas to perform its functions, and has recommended that an independent review consider whether the Mas should exist at all as a statutory body.
“I have written today to the chancellor, asking him to clarify the scope and limits of the role proposed for the Mas.
“Furthermore, the independent review should be allowed to consider both immediate improvements to the Mas and the question of its future as a statutory body. Without such an undertaking, the committee would have reservations about a role for the Mas in an area as important as the guidance guarantee.”
David Smith, financial planning expert at advisory firm Bestinvest, said that while it is a “step in the right direction” that independent bodies will be providing the guarantee, “it is important to also recognise this has real limitations”.
He flagged up that people need to develop a retirement plan many years ahead of retirement to secure a decent outcome.
Mr Smith said: “An adequate financial position in retirement is all about understanding the required level of savings that need to be made, use of tax efficient plans such as Isas and pensions where possible, and of course the selection of high quality of underlying investments is of paramount importance. None of this is to be provided under the pensions guidance scheme announced today.”
He added that most individuals will still need help to select a specific at retirement solution, which will the guidance will not be able to do.
Mr Smith said: “Selecting a decent retirement solution, whether a portfolio of funds or an annuity will still require expert help.
“In summary, the much hyped guidance guarantee will only work effectively when dovetailed with the services of regulated firms of financial intermediaries who research the wide range of product options available.”
Matthew Phillips, managing director at Broadstone Pensions and Investments, said: “We still have concerns around the depth of the advice that will be provided, how it will be provided and what redress consumers will have if the guidance (if that is what it is) is incorrectly given.
“The government now seems to want to allow unqualified individuals to provide guidance to consumers. With the new rules enabling individuals to take all of their pension out, what will this guidance look like?
“Understandably, we believe that obtaining good, independent advice that is specific to you is really important and will increasingly be so under the new rules, where the greater flexibility and choice, does mean that the risks of getting it wrong have increased.”
Simon Foster, head of corporate life and pensions for UK and international savings at Zurich UK Life, stressed the need for the FCA to work with advice providers.
He said: “Giving responsibility of delivering the guidance guarantee to independent organisations is sensible.
“But the changes introduced by the Budget make the availability of information around saving even more important and we believe that guidance should be provided throughout people’s working lives, not just at retirement, if savers are helped to make the right decisions.
“That’s why employers willing to offer workers advice should be given a safe harbour to prevent them from being sued decades after having provided guidance. In order to ensure innovation in this space, we believe the FCA should also work with advice providers.”
Richard Rowney, managing director of LV, echoed other industry members words as he agreed independent organisations to provide the guidance was sensible too.
He said: “Whilst guidance may be sufficient for individuals with pension funds up to a certain value, we believe that it is essential that, where appropriate, guidance encourages individuals to take regulated advice.
“We believe that many could benefit from advice as to how they structure their retirement income and we would welcome the introduction of a regulated advice voucher, funded through a levy on the financial services industry.
“This would provide a triage system that allows those individuals who want to, to seek further advice.”
Graham Vidler, director of external affairs at the National Association of Pension Funds, said: “Up to 500,000 people will need guidance next year. Workplace pension schemes want to help their members make good decisions.
“To do that, they need to know how to adapt their own communications to signpost and complement the guaranteed service. They will also want to be confident that the new service is fully-tested and ready to deliver from day one. With less than 200 working days to go, the clock is ticking.
“We are already working closely with both Tpas and Mas to share thinking on the shape of guidance. We continue to be committed to making a success of guidance and stand ready to help the Treasury project team announced today make the necessary progress at the necessary pace.”
