A report in FTAdviser sister title the Financial Times at the weekend suggests this concern could prove well founded.
With just two weeks to go until savers are granted full unfettered access to their funds, the Pension Wise guidance service which forms the cornerstone of consumer engagement and which was publicly trumpeted by George Osborne is still not ready.
Individuals will be able to book a session two weeks in advance. Or not: appointments are still not being made available for the first sessions in two weeks that the Treasury insists will still go ahead on schedule.
The Treasury also revealed changes are still being made to the service, with an ‘insider’ claiming this includes the removal of risk warnings. Talk about “cutting it fine”, in the words of Richard Wilson, money purchase pensions policy head at the National Association of Pension Funds.
Mr Wilson similarly expressed in an article in the Times on Saturday that guidance may not be ready, warning that fraudsters could be set to cash in on a “vacuum” of information for consumers.
That’s a lot of potentially poor decisions that’ll have major long-term consequences. And that’s where you, dear reader, come inThis is all extremely worrying. In the words of one expert speaking previously to FTAdviser, the Treasury has tried to cram three years’ work into around six months; given the likely scale of interest from consumers any shortfall in support could have catastrophic consequences.
According to data collated by transfer software firm Origo an aggregated war chest of close to £5.5bn has been held back in pension funds that would have been crystallised last year, while official Treasury projections suggest half a million retirees will access their funds from April.
That’s a lot of potentially poor decisions that’ll have major long-term consequences. And that’s where you, dear reader, come in.
In that Times article, the paper cited the alternative option of seeing a regulated financial adviser, making a case for your services which it is to be hoped many consumers will find compelling.
Noting that Pensions Wise is limited in that it cannot recommend a product, the article highlights the fact that advisers can offer this more direct support for an upfront fee.
Moreover, while advice for a relatively simple case is said to cost around £600, the article helpfully compares this to fees for a non-advised broker to buy an annuity, say. Commission of up to 3 per cent for an enhanced rate means even the average £35,600 pension would incur a charge of £1,068.
Given the apparent delays to guidance - and the fact that by all accounts it could be pretty ropey at first in any case - it is to be hoped that more people choose advice. This is as good a case for it as I’ve seen.
Annuity for cash concerns
Talking about government plans for retirees which might not, well, go to plan: annuity re-sales took a kicking across the weekend Money pages.
The plans, first mooted and then championed by pensions minister Steve Webb, have divided the industry into those promising polarised visions of chaos and detriment on one hand, and those proclaiming a future festival of liberty on the other.
It’ll be somewhere in the middle, of course, but the warnings from those on the cautious side of the fence won out at the weekend following confirmation of the plans in last week’s Budget.
The Times quoted the Institute of Fiscal Studies’ claims of ‘adverse selection bias’, meaning that those seeking to sell will be those in poor health with tiny pensions anyway, who will get the best part of not a lot for their income stream.
An article in its Sunday sister paper revealed that a provision in the proposals giving annuity firms behind the policy the right to refuse to re-assign could scupper a lot of plans. “Aviva, Scottish Widows and Phoenix were unable to confirm to The Sunday Times that they would allow customers to sell”.
Others may be put off by discounts, which could be heavy. An article in the Guardian quoted some figures from Fidelity, suggesting a man selling a £7,000 a year annuity he bought at age 65 a decade ago could get £48,000. Given rough average life expectancy of 84, I make that a discount of around 24 per cent to assumed total payout.
All in all, this was deemed by most experts to be likely to significantly reduce the £1bn the government has projected it’ll take in basic rate taxes in the first two years of the policy from 2016.
Andy Bell of AJ Bell told the Times that to reach the government figure of the equivalent of £500m a year would require £2.5bn in secondary sales value - by my calculations pots worth more than £3.1bn with the 20 per cent discount taken into account.
Based on Mr Bell’s assumptions that a pot size of around £30,000 would be a rough ceiling for sales, that means more than 100,000 legacy annuitants each year being allowed to sell by their insurer, receiving offers and wanting to sell at that valuation. To be specific Hargreaves Lansdown’s Tom McPhail reckons 125,000.
I don’t know about you, but I’d agree that’s optimistic.
ashley.wassall@ft.com
