I could equally have bastardised that adage very differently, with just one word replaced: with great freedom, comes great risk. And herein lies the rub of the changes coming in April.
I’m a fan. I share with many a general belief that a government should not prescribe how someone can use their amassed savings in retirement, as well as that the existing complexity and rigidity in the pension system was a significant barrier to saving for many.
The consequences, of course, are that we will have to accept some will not use their newly bestowed autonomy judiciously. Warnings of people running out of money is not scare-mongering, it will happen.
Pensioners with open access to their money will be a target for unscupulous, unregulated ‘advisers’ touting all manner of high-risk tat; some will simply take the money and have a jolly good time, thank you very much.
Of course, the guidance guarantee will hopefully ensure most are informed enough not to fall prey to the predatory few, and that those who have been prudent enough to put money aside understand the true value of their accumulations. I’m also an optimist: I think once the system is finalised and explained, the vast majority will take this guidance.
Get your disclaimers ready - and prepare for the claims down the line.We will most likely be left with a situation that includes a portion of people with small pots taking - and then splashing - the cash (and why not). Those at the top will, I’m sure, use the widest array of options in new and beguiling ways entirely appropriate to their circumstances.
I’m with Steve Webb: it is the rump in the middle, with some-but-not-a-lot saved, who pose the challenge.
‘Annuity’ has become a four-letter word for some. Undoubtedly useful for many, fewer than you might argue should do so will want to buy one now that they don’t have to. So we will be left with flexible access drawdown that is currently only for the privileged few, ad-hoc lump sums, and as-yet-unknown innovations.
We’ve already seen average drawdown pots dropping as sales soar, while the likes of the Financial Services Consumer Panel are raising the alarm early about ‘non-advised’ sales of a product which has hitherto been designated for those with £100,000 or more.
Their solution is to take advice - because you can make claims in the future. Yes, you can eat your cake and still have it too, if you find later it doesn’t agree with you.
These comments were made during a panel debate earlier this week, which thankfully featured the calm head of Personal Finance Society chief executive Keith Richards. He took the chance to agree that advice is preferable - and agreed drawdown should not be sold on an execution-only basis - but warned against promoting advice on the basis of future claims.
He used that word again. Mr Richards said part of being in a society with freedoms such as those at the heart of the at-retirement reforms means “making important decisions and taking some level of responsibility”.
Because some clients with, say, £50,000 to invest - or lower, as the FCA now says this an adequate lower threshold for drawdown - will come into adviser offices and demand help to access their money, while eschewing an annuity.
Given the regulator’s erstwhile bias to the latter, how you handle some clients could define the way the reforms will pan out for many. Get your disclaimers ready - and prepare for the claims down the line.
The FCA is already talking of the need for enhanced consumer protection as a result of the “asymmetry of knowledge between producer and customer”. Facing questions on future redress, director of policy David Geale talked about adviser indemnity insurance, capital adequacy, and the Financial Services Compensation Scheme.
Unlike Mr Richards, the word Mr Geale did not use when talking about the consumer was ‘responsibility’. Some MPs even suggested the government could face claims for what I suppose we’ll have to brand ‘mis-guiding’ pensioners.
These reforms are to be celebrated, but we cannot have it both ways. Of course we must protect consumers, but we must also ensure that if we allow people to make their own choice, we do not in the process abrogate their responsibility for the decisions they make.
