Regulated advice should not be promoted to retirees simply on the basis that by doing so they will have greater recourse to claims in the event of poor outcomes, the chief executive of the Personal Finance Society has said.
Speaking to delegates at a pension debate hosted by annuities provider Partnership, Keith Richards said advice should be promoted because clients will most often to supported to make “right decisions”, but that the reforms demanded a degree of “responsibility” on the part of consumers.
He was responding to a question from Teresa Fritz of the Financial Services Consumer Panel, who was in the audience and asked the panel whether it should be “unacceptable” post-April to sell complex products like income drawdown “without the protection of regulated advice”.
In particular she cited that via regulated advice consumers have the “protection” of the Financial Ombudsman Scheme if they are sold an unsuitable product.
Mr Richards (pictured) said the easy answer to the question is “yes” as income drawdown is “just too complex”.
However, he added: “I don’t like to overplay that you get ‘protection’ when you receive advice because we have become more of a litigious society... they [clients] are more likely to be ‘protected’ to be making the right decisions and be guided all the way through”.
Mr Richards added that part of being in a society with freedoms such as those at the heart of the at-retirement reforms means “making important decisions and taking some level of responsibility”.
The comments came after the panel of experts had agreed that the reforms, and especially the speed with which they have been introduced, would likely lead to some ‘bad outcomes’ for consumers, though most suggested this was the nature of liberating the market in this way.
Several cited the ‘guidance’ pledge and recent predictions of low take-up, suggesting that more time should have been allocated to ensure this element of the plans was more considered.
Steve Groves, chief executive of Partnership, added that the reason why drawdown is so complex is because it is “very difficult” to understand risks around “sequencing, long-term investment returns and longevity”.
However, he said he would not go so far as to say it should only be available via regulated advisers but simply that an individual using execution-only services would “need to be very careful to understand you are doing the right thing”.
Tom McPhail, head of pensions research at Hargreaves Lansdown, once again flagged up his own mis-selling fears in particular around the new uncrystallised lump sum option.
He has previously flagged up that his concern that this option is not subject to the same regulatory scrutiny as alternatives and has publicly backed Aegon’s stance that the option should be scrapped altogether as it is “unnecessary and unhelpful”.
In response to Ms Fritz’s question during the debate he said: “Occupational pension schemes as I understand it... if I ring up and ask they will send it [a payment] to me. They might talk to me about tax but that’s about it.
“There seems to be this imbalance between how we try and shore up a safe product sale when using drawdown, but you can pretty much do what you like when using UFPLS. You can send it to me and I’ll keep using it until I run out and then it’s my problem, because that’s consumer risk for you.”
He also flagged up concerns around unregulated businesses pushing people to take their pension out wholesale and put it instead in unregulated investments sold on the basis of attractive income yield.
“It’s unregulated advisers [selling] investment schemes that will be targeting the over 55s and saying, ‘I’ve got this great Costa Rican property investment with a guaranteed 10 per cent a year. Take your money out of your boring pension and give it to me and I’ll do something really clever with it’.
“The clever thing is you’ll never see [your money] again.”
donia.o’loughlin@ft.com
