When savers will be engaged to consider retirement income options looks set to become a key battleground in the government’s plan to offer retirees guidance as part of a liberalisation of pensions rules.
This morning (9 March), the influential Treasury Select Committee published a report into the Budget proposals which included a list of six ‘principals’ covering the new ‘guidance guarantee’ for savers.
Among demands that the service be free at the point of receipt and properly impartial, the committee said that it must be offered to savers at least 12 months prior to their retirement date.
Commenting on the paper, pensions experts have suggested that may not be long enough, with one even suggesting that a period of five to 10 years prior to a decision needing to be made would be more suitable.
Jim Boyd, director of corporate affairs at Partnership, the enhanced annuity provider which has seen its share price plummet in the wake of the announcement, said if people we approached “at least five years before retirement, if not 10 years” it would “enable them to make a logical decision”.
He added: “Another positive is that it will lead more people to access regulated financial advice and the guidance must explain to consumers the value of advice.”
Mr Boyd also said he did not think one guidance session was adequate, warning that a short session would be likely to confuse people.
Tom McPhail, head of pensions research at Hargreaves Lansdown, warned that the Financial conduct Authority’s existing conduct of business regulations “need to be torn up and replaced with some very carefully designed pre-retirement messages”.
He said that investors “will need to take a good run up at their retirement decision making and will need to be steered towards good decisions”, adding this would “need to start long before the point at which they actually want to take money out of their pensions”.
Other key debates revolve around how the advice will be paid for - the TSC had said it wanted to see the ultimate cost to consumers for the free openly disclosed - and how it would be delivered, including the thorny issue of whether providers were well placed to deliver the service.
Andrew Tully, pensions technical manager at MGM Advantage, said: “I completely agree that guidance needs to be completely impartial and independent from providers.
“Face-to-face for everyone is not economically viable and not a lot of people would want that but it needs to be an option. Telephone and using technology such as Skype and video conferencing could bring the cost down for face to face advice.
“A slightly different version of face-to-face advice is to run meetings in a library. If you get things like that it would be less personal then someone taking one to one so a balancing act is needed
“I think for it to work it probably has to be free at the point of receipt but the cost may be picked up by an industry levy. The unknown is how it will work. Realistically someone will have to pay [at the point of receipt] and that will either be the government or the industry.”
Mr Osborne placed the onus on providers in the Budget and gave the FCA £20m to get the process started, with consultations already underway with trade bodies and others on draft plans.
Some providers have already come out against the plan to make them responsible for an ostensibly impartial service, with notably Royal London chief executive Phil Loney saying regulatory bodies needed to “develop a new form of advice which is fit for purpose for customers”.
Others such as Prudential have argued providers’ ability to give guidance should not be immediately dismissed.
Russell Warwick, distribution change director for UK and Europe, said: “While there are clearly differences of opinion as to the role that providers could play in providing the guidance, we shouldn’t overlook the strengths and experience that many providers have in this area.
“These strengths include the ability to identify and access customers who are coming up to retirement, expertise in the existing policies these customers hold and any guarantees included, and experience in providing the majority of the product solutions that are likely to be involved, both before and after retirement.”
