Rushed introduction of far-reaching radical retirement reforms will inevitably mean consumers are not adequately protected or informed, leading to “bad outcomes” in the short term, a panel of experts featuring the regulator’s Rory Percival has admitted.
At a pension panel debate last night (10 November) hosted by annuity provider Partnership, saw experts question in particular the nature of the ‘guidance guarantee’, the government’s measure to help support customers, the terms of which are still to be fully confirmed.
David Cartwright, head of insight and consulting for wealth and protection at Defaqto, said that the guarantee forms only part “of a silver lining”, adding that he is still trying to visualise how it will work to ensure consumers make informed decisions.
Jonathan Howe, partner at PricewaterhouseCoopers, cited the concept of a single guidance session and said if the Treasury is simply “talking about a one-off decision in one point in time, we will end up with bad outcomes”.
Tom McPhail, head of pensions at Hargreaves Lansdown, stated: “There’s an assumption that when we get to 6 April, all consumers will be able to make good decisions but it won’t work like that.
“It’s imperative to get individuals engaged with their pensions and get individuals engaged further back down the line. It feels right now that the government is not giving adequate consideration to [this].”
He went on: “This is a terrific opportunity for industry, advisers, occupational pension schemes to engage with consumers along the line and get them to a point to make a decision. Whether that is done through regulated advice or information via a scheme or simplified advice or guidance; I think all those solutions have a role to play.
“It might be a bit of a challenge by 6 April and as a consequence there will be a lot of unintended consequences. Bad things will happen in the short term.”
When the FCA’s Mr Percival was asked for his view, he said simply: “The time frame is what it is... we can only work with what we’ve got.”
A key concern has been that consumers will see the reforms as an opportunity to access their savings without proper understanding of long-term implications. A recent survey by Intelliflo found almost three-quarters of advisers think at least some clients might encash their entire fund.
The degree to which guidance will help people make informed choices has been thrown into doubt by projections of poor take-up, including one pilot study conducted by Legal and General and The Pensions Advisory Service which predicted just 2.5 per cent would avail themselves of guidance.
Mr Howe sought in part to defend the freedom at the heart of the reforms, saying that giving people more choice “includes the choice to make bad outcomes”.
Mr McPhail countered: “I agree, however the guidance guarantee is like a seatbelt. Obviously it’s a good idea, but it’s optional. Yes people have the right to make bad decisions as well as good ones, but there are some things [we should do] to try and maximise good decisions.”
Steve Groves, chief executive of Partnership, warned there is a “real danger” that the industry will overcomplicate things, “as that complexity will allow them to maximise their returns”.
He added: “A simple proposition... is unintelligible to the average person on the street. This is not helped by the many disclosure requirements we have to do; we have to think about simplifying how we communicate. What is simple to someone and someone else can be miles apart.”
donia.o’loughlin@ft.com
