Insurers are concerned over a potential conflict between between giving people access to their pension pots as demanded by the new freedoms, but ensuring they are encouraged to take-up non-compulsory guidance to inform them of the potential pitfalls.
Jamie Jenkins, head of workplace strategy at Standard Life, told FTAdviser that while people are not compelled to take guidance it is generally considered to be particularly valuable for those with significant retirement funds where the tax bill can be very substantial.
Mr Jenkins added that the potential risks of withdrawing the fund, or of the fund value changing rapidly between decision and divestment, would need to incorporated into product risk warnings.
“Fluctuations in markets are always a risk that people face in the timing of any decisions to make or receive payments from a savings product and warnings have been constructed to cover this point.”
Adrian Walker, retirement planning expert at Old Mutual Wealth, told FTAdviser that while terms and conditions would state the provider must pay, it will soon be under an obligation to urge members to take guidance, adding that contracts may need to be amended.
Concerns have arisen amid debates over how many people will take up guidance.
During a Pension Scheme Bill commons committee hearing Michelle Cracknell, The Pensions Advisory Service chief executive, estimated that only 25 per cent of retirees will likely do so initially. She added that this figure would probably rise to 75 per cent in the future.
Other estimates have included one from a pilot study conducted by Legal and General with Tpas which found just 2.5 per cent of people took up guidance, and one from the CII which found as many as 95 per cent may do so.
Mr Jenkins pointed out that there is some protection afforded in the fact that most people in workplace schemes who are approaching retirement will be in a default investment option which will automate some degree of de-risking.
“In short, investments are gradually switched from more volatile equities to other asset classes such as bonds and cash to reduce the risk of last minute fluctuations in value.
“There are also a number of investment strategies that aim to provide not just real returns but reduced volatility, such as absolute return funds. We anticipate these playing a significant role in future with more flexible retirement solutions that involve some ongoing investment of the fund.”
Steven Cameron, regulatory strategy director at Aegon, played down the risks, noting that providers are obligated to tell people guidance is available, “but they can decide not to use it and ask us to respond to their request”.
Tim Gosden, head of strategy at Legal and General, agreed that as guidance is not compulsory, so it is the individual’s responsibility and was therefore unlikely to fall back on the provider.
“There may well be the possible outcome of savings in tax or state benefits via the guidance anyway, so I think we’ve got to encourage people to go get it,” he added.
The Financial Conduct Authority’s director of policy David Geale has mentioned that the regulator could only do so much in forcing people to take the guidance, and would look to monitor take-up levels before it took further action.
Final details are likely in the late autumn, when the FCA publishes its policy paper, following an earlier consultation on the guidance guarantee.
In terms of sign-posting the guidance, the regulator’s head of savings and investment Maggie Craig said any subversion would not be tolerated, but so far no indications of that had been seen.
peter.walker@ft.com
