While the headline price for regulated financial advice will scare off some consumers, the ‘guidance guarantee’ will help people understand the true value of advice, the pensions minister said at a conference yesterday.
Speaking at the Institute of Chartered Accountants in England and Wales’ retirement savings summit yesterday (17 November), Steve Webb noted that the idea of a free guidance session at retirement was to get people thinking, rather than giving the answers, and he fully expected people to follow-up by seeking full regulated advice.
“I see this as a taster, that people will actually have the guidance and they will realise they now have choices they’ve never had before. I hope one of the things a guidance conversation will do is help people realise that advice might be worth paying for.”
Mr Webb stated that up until now the headline price on advice was “a bit scary” for some, but after the guidance many will understand its value when making big decisions on their retirement.
“I think this will feed the demand for regulated financial advice, particularly if we can find ways to make sure there is something at ‘budget’ end of the market, something that meets needs in a regulated way but doesn’t necessarily cover the entire waterfront.”
Mr Webb also has admitted that “some people will get it wrong” when making at-retirement decisions using the new flexibilities set to come in next April, but “that’s what happens when you set people free”.
He told delegates that the reforms brought certain dangers, but that many more people were getting “sub-optimal” outcomes with the current system.
“[People] will make the wrong choices, they will get a worse outcome than if they had, for example, fully taken up our guidance or paid for advice, or if they had bought an annuity.
“We need to be absolutely upfront about that. We have a responsibility, having set people free, to equip them as much as we can; but that doesn’t invalidate what we are trying to do.”
Mr Webb also defended annuities, stating that they are “not evil” and that while guaranteed income products are “certainly not wrong, more choice was needed”.
“The reputation of failed annuity markets was dragging pensions down.”
Mr Webb later dismissed a suggestion from Richard Bertin, managing director at Fleming Family and Partners, over introducing tax relief to help people pay for financial advice, along with a call from the audience for tax relief to help people pay for long-term care.
“That’s two calls for tax relief in one afternoon, at a time when we’re supposed to be tightening our belts. I question whether a tax break would bring in those people that wouldn’t be taking advice, or rather it would just be taken advantage of by those already getting advice.”
The idea of tax relief was also the only area of government policy where Mr Webb admitted that the next government might dismantle. “The omens are good on stability... I’ve sought to build consensus, and while the opposition don’t like all of it, annuity reform is popular so shouldn’t be repealed.”
At a pension panel debate held last week, pension experts warned the 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.
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.”
peter.walker@ft.com
