Which way the UK?

Financial Adviser

The next phase of the step towards pensions freedom has just been revealed, and it has received a cautious welcome.

The ‘guidance guarantee’ will be called Pension Wise, and is reported to cost £35m. The idea is to get people going there first when they reach 55 and decide what to do with their money. The aim of the scheme is a laudable one, in principle, and necessary, given the dangers people face with being handed so much money and complete freedom of what to do with it.

Industry estimates suggest that the amount that people would like to unlock could be three times the government reckoning of £2bn. Even that £2bn is plenty of money coming onto the market, be that being spent on holidays, home improvements or paying off debts.

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The range of experiences across the world where this experiment has already been tried shows startling differences between countries. Switzerland’s rate of annuitisation is 80 per cent, compared with Australia which is about 4 per cent. Part of the reason for the latter figure is a lack of a decent annuity sector.

But which way will the UK go, given its propensity to spend and well-established financial services industry?

The pension industry has not exactly covered itself in glory over the years, by doing very little to persuade people to shop around for the best deal, or encourage those with ill health to buy a better product.

So Pension Wise will become the frontline between an individual, his money and the financial services industry. Will it be able to handle the cynicism that many will have for life offices and the dazzling riches so close at hand - tens of thousands sounds a lot of money to someone used to budgeting carefully.

Pension Wise will only really work if it is given the support it needs to become uppermost in people’s minds when they come to make a decision about what to do with their money.

And it would really do a service to the UK population if it talked about getting real financial advice, rather than just a few pointers in the right direction.