The government is set to force pension providers to introduce a ‘guidance guarantee’ meaning all individuals with a defined contribution pension will be offered free guidance at the point of retirement.
The ABI recently said pension providers have promised to give every customer a chance to speak with them or an independent advice service prior to buying an annuity by 2015.
However, in today’s (19 March) Budget - in which chancellor George Osborne announced that “no one will have to buy an annuity” - the government has revealed pension providers will have to go further and honour a pledge to provide “face-to-face advice” to all retirees.
The consultation, Freedom and choice in platforms, reiterated that consumers need to be able to “make informed decisions” and therefore it “guarantees” that individuals approaching retirement will receive “free and impartial face-to-face guidance to help them make the choices that best suit their needs”.
It said it will be introducing a “new duty” on pension providers and schemes to deliver a “guidance guarantee” by April 2015.
It will fall on providers to ensure that all individuals with a DC pension in the UK and approaching retirement will be offered guidance at the point of retirement.
The government said the guidance must be “impartial and of consistently good quality”. It also must:
• cover the individual’s range of options to help them make sound decisions and equip them to take action, whether that is seeking further advice or purchasing a product;
• be free to the consumer; and
• be offered face to face.
The government has asked the Financial Conduct Authority to make sure this guidance meets “robust” standards, working closely with consumer groups.
The government will also make a £20m development fund available to get the initiative up and running.
The consultation said: “These major reforms amount to the biggest changes to savings for a generation. New products will need to be developed and markets will need to adjust.
“If sold well, annuities have the potential to be a good product and I expect them to continue to play a significant role. But I want people to be able to decide what is right for them.
“We cannot expect people to save responsibly for their retirement if they do not believe they will get value for money from their savings when they come to access them.
“This is the most fundamental change to how people can access their pension in nearly a century. I encourage you to take the opportunity to contribute to the consultation.”
Chris Hannant, director general at the Association of Professional Financial Advisers, adds: “This is recognition by the government that financial advice for people moving from the workplace into retirement is vital.
“How to access retirement income is one of the most important financial decisions people take and with the compulsion to buy an annuity removed, having an adviser present to talk them through all the options and the risks will be crucial.”