Pension freedoms: when no means no

Pension freedoms: when no means no

The pension freedoms implemented in April have modernised the pension industry. But the changes have been criticised by pension companies who have had decades to innovate, especially when it comes to the process of buying an annuity. Instead they decided to protect their profits.

When Steve Webb, the now former pensions minister, recalled a meeting with leading industry figures to discuss changing annuities, he described their attitude as being dictated by a fear of prompting a net outflow of funds. He accused the firms of ‘quite enjoying all this money just sitting quietly on their books – don’t prod it whatever you do’.

The government has assumed that the financial advice sector will advise clients who do want to take advantage of the relaxed rules. Providers though won’t help (why would they encourage outflows?) So the Money Advice Service, Pension Wise and the very professional Citizen Advice Bureau are tasked with guiding clients when advice appears mandatory.

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Financial advice, rightly, is expensive. I’d want £500 before looking at client options; many advisers are into four figures for a couple of meetings, you may be lucky and find an adviser who’ll give you 30 minutes on the phone, pro bono.

Those who have enjoyed a lengthy relationship with a financial advice firm will have the option of asking, hopefully without prejudice, whether taking a taxable lump sum from their pensions is a sound plan – before incurring initial fees.

The challenge surfacing is that financial advisers don’t want to advise. My own view is that too often, they will adopt a starting point of saying ‘no’ before using a detailed cashflow plan to work out whether they actually ought to be saying ‘yes’.

I’m still not going to tell a client whether they should cash in their pot; it’s their decision. But of course this approach is causing issues with a small percentage of my clients who feel I should make the call for them.

Here’s the thing, I’m not going to. Advising clients to ransack their pension and pay tax goes against everything I’ve been doing for the last fifteen years.

My stance fits with the Financial Conduct Authority (FCA) rules and keeps my professional indemnity insurer happy. It’ll be interesting to see how this conflict of interest is managed by advisers in the future and if the FCA issues any guidance.