Personal Pension  

Poor advice will prevent pension reform income boost

Access to advice will be the key determinant of the success of George Osborne’s radical pensions overhaul and is likely to undermine the reforms and prevent consumers from benefitting in the form of increased retirement income, according to a majority of self-invested pension firms.

At the recent annual conference of Sipps trade body the Association of Member-Directed Pension Schemes, a clear majority of members polled said they believed the changes had the potential to result in higher incomes, but the largest share of members stated that they ultimately would not.

Some 67 out of 98 members that responded said the Budget has the potential to result in higher average retirement incomes but only 25 said they actually would in practice, with 40 saying they would not improve incomes and 30 saying they could not be sure.

Neil MacGillivray, head of technical support unit at James Hay Partnership and chairman of Amps, says the disparity is all down to advice.

Speaking to FTAdviser, he said: “The bottom line is the changes that come in have the potential to improve people’s retirement incomes but actually will people benefit from the changes?

“There is concern as to whether they will take advice. Without proper advice, people will make the wrong decisions. We have advised, non-advised and the worst is the ill-advised.

“The general feeling is people will be a lot better off but that will be down to advice. There is a real, real concern I think that yes it is positive, yes [there is] potential for people to get a better income, but will they actually?”

Mr MacGillivray said that without guidance and proper advice there are concerns people will “strip out their money and pay more tax than they need to”.

He adds that phased drawdown could me more tax efficient, which emphasises that there are strategies to make people better off “but only where the take advice”.

When asked whether he means independent advice or if he is referring to the government’s ‘guidance guarantee’, Mr MacGillivray said that at this moment in time it is not clear what the guidance will look like.

He said: “We don’t know the detail yet: what form this will take, costs, will people have the information to make informed choices? The government has to decide this in less than a year.”

Chancellor George Osborne promised in this year’s Budget that from April 2015 a ‘guidance guarantee’ will be introduced.

It is currently in a consultation phase, but as it stands individuals approaching retirement will receive “free and impartial face-to-face guidance to help them make the choices that best suit their needs”.

Successive studies among more than 2,000 providers have shown a desire among some consumers for full service advice and a consistent core of around 25 per cent that take advice now and will seek to do in the future, but most of the remainder had no interest in paying for advice.

This has led to concern from some quarters over the nature of the guidance guarantee for non-advised retirees, many of whom do not understand the variety of product options.