Your IndustryMar 12 2015

Pros and cons of post-April guidance provision

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Karen Barrett, chief executive of Unbiased, says it is great there will be a service for people to approach in the first instance to get more information about their retirement options.

The more ‘homework’ people can do around their options, the higher the chance of them making the right decision. That there is such a free service available to give at least a solid overview of options and consequences is an obvious benefit cited by most commentators.

The creation of Pension Wise has the potential to be a huge step forward for the pensions market, says Darren Philp, director of policy and market engagement at The People’s Pension.

Combined with new freedoms, Mr Philp says the fact that people approaching retirement will be able to talk about their options for free could really help them make the most of their money.

He says a successful delivery of Pension Wise could help to demystify pensions and retirement income and, perhaps most importantly, provide savers with confidence about the choices they make.

Michelle Cracknell, chief executive of The Pensions Advisory Service, says people find it difficult to navigate the pension landscape, with little understanding on who does what and for whom.

She adds the guidance offered by Pension Wise aims to empower consumers to make informed decisions on how to make best use of their pension savings and, as part of that, it aims to make consumers aware of scams and help to ensure consumers are less vulnerable to mis-selling.

Downsides and risks

Ms Barrett says the obvious downside is that guidance from Pension Wise does not give a personal recommendation to those using the service and therefore does not remove the inherent risk of someone making a decision themselves.

Ms Barrett says: “The choices made at the point of retirement can have an effect for years to come, and some cannot be undone, so it is vital that consumers understand this.”

This is another common refrain: most mainstream consumers really want ‘advice’, someone to tell them what they should be doing with their money. Guidance providers, who will only be qualified with a sub-advice level 3 certificate, are obviously unable to fulfil this demand.

Richard Wilson, policy lead for defined contribution at the National Association of Pension Funds, raises concerns that many people will really struggle to decide what to do with the new pension freedoms, and not understand the different risks.

He says: “Our research has shown that one in five respondents agreed to some extent they would take their pension as a lump sum irrespective of whether they had adequate sources of income from elsewhere.

“Guidance will help but it isn’t full advice and many will not know what to do at the end of their session.”

Another frequently raised concern is the risk that the rushed timetable to get guidance prepared - hiring for staff is ongoing and session content being finalised at the time of publication - will result in a below-par service launching in April.

Andrew Tully, pensions technical director of MGM Advantage, says he fears building the guarantee service is probably a three-year job, which has been completed in around six months.