Is Pension Wise guidance service doomed to failure?

To answer this it is worth looking at what the service is and what it is supposed to deliver. In April the shackles will come off pensions and a new era will arrive. Many providers and advisers are understandably already getting excited at the opportunities. I suspect it will be more of a bumpy ride than many imagine with lots of potential for bad advice and consumer detriment.

Having said this, it is only fair to say that many millions will welcome the new freedoms and will be better off as a result – at least in the short term.

To help consumers make the right choices, chancellor George Osborne announced last year that a new government-sponsored service would offer free advice to the estimated 300,000 people annually who will be able to access their defined contribution schemes from age 55.

We now have flesh on the bones of the scheme and no one would call it any more than cheap, cheerful and basic. Sitting down for many hours of discussions and investigation with a highly qualified financial adviser it is not.

At the first stage Pension Wise will offer an online and telephone advisory service through The Pensions Advisory Service. I have a lot of time for TPAS but, unless I am corrected, it will not be offering actuarial assessments of transfer values and the like. We are talking very simple guidance.

The next stage is, perhaps, more controversial. People will be offered the chance to see an adviser at a Citizens Advice Bureaux across the UK. Again, I am a big supporter of the CAB and it is a fine organisation but some have already questioned whether the CAB, essentially a charity staffed by volunteers, will be able to cope with the demand. If only half the people eligible approach the CAB that is over 10,000 extra people a month seeking advice.

I have written several times in the past that the one thing that would make the single biggest difference to people’s financial lives would be access to free government-sponsored, one-to-one personal finance advice. A few hours of good advice once a year could make a huge difference. Many major consumer blunders could have been avoided if only consumers had seen a professional adviser.

Pension Wise will be a move in the right direction but it is naive to suggest it will be able to answer most people’s questions and I suspect there will be enormous frustration with it. The one possible benefit for financial advisers is that it may lead to more people being encouraged to see a full-time financial adviser if their questions are complex. This could create new business opportunities for advisers but will the consumers needing extra advice be able to afford the fees?

Financial advice has never been so expensive in my lifetime and, inevitably, out of the reach of millions of people. The consumers who will inevitably contact Pension Wise seeking answers may well find their questions outside the scope of the service. So what will they get – half an answer? An encouragement to go and see a professional financial adviser they can not afford? Frustrating to say the least and potentially the Achilles’ heel of this well-intentioned idea.

My recommendation would be that Pension Wise links up as soon as possible with the nation’s financial advisers because many consumers will need them. I suspect many advisers would be pleased to have the referrals and could offer a cut-down, limited advice service based around just pensions advice rather than lifetime financial planning. It would give consumers access to government-regulated financial advisers with many years of experience of pensions planning. It is amazing this does not appear to have been considered.

Without this, I can see the service struggling. It will either find demand too high and be unable to cope or end up with some unhappy customers who need more complex advice but do not know where to find it. Ultimately financial advisers are the best source of independent pensions advice in the UK and not to use their skills and experience will be folly.

Pension Wise will either find demand too high and be unable to cope or end up with some unhappy customers

So while I applaud the initiative I do not believe it will work as Mr Osborne wants it to. There is also a grave danger that the new pension freedoms will encourage all sorts of scoundrels to try and separate consumers from their pension pot as soon as possible.

It is sensible that the government, to protect consumers from imitators of the service and to ensure the guidance brand is trusted, will make the imitation of Pension Wise illegal through the Pension Schemes Bill. Anyone seeking to pass themselves off as the service could face prosecution.

In addition, the FCA will be watching out for pension fraud. It will need to watch very carefully as the dangers of rip offs will multiply after April, free pensions advice or not.

Kevin O’Donnell is a financial writer and journalist

You Said: Red, in response to HM Treasury’s £4.2m levy for 2015/16 on financial advisers to fund Pension Wise

“This borders on a criminal rip-off. I don’t want this service. The service is of zero value to me or my clients. We were never consulted. The service will be sub-standard. I will have to charge fractionally more to my clients (who seek and pay for advice) in order to pay for those that actively seek to avoid paying for real advice.”