In an open letter to new pensions minister Ros Altmann, Royal London chief Phil Loney wrote that just two months into the new pensions regime it is “very clear” that the policy to safeguard savers with guaranteed annuity rates is a failure.
To protect savers, the government introduced legislation that anyone with safeguarded benefits in a pension pot that is above £30,000 - such as guaranteed annuity rates or defined benefit schemes - must take regulated financial advice if they intend to cash in their fund.
Mr Loney admits that this is not a decision to be taken lightly, but warned that savers with pots slightly above the £30,000 threshold are frustrated that this policy is in place and providers are preventing them from accessing their cash.
“Clearly it was the intention of the legislation to safeguard savers with GARs by requiring them to seek the advice of a qualified adviser,” he wrote. “Two months into the new pensions regime it is very clear that this policy to safeguard savers with GARs is a failure.
“Providers are accused of creating barriers to prevent customers exercising their rights under pension freedoms.”
Mr Loney added that advisers are “reluctant to engage” with modest savers finding the limited scope of advice on GARs an uncommercial proposition.
“Others that might be disposed to assist modest savers are put off by the prospect of subsequent regulatory sanction when savers come to understand the value of the guarantees they have given up.
“The situation that savers with GARs currently find themselves in is deeply unsatisfactory and risks bringing all parts of the pensions industry and the freedoms themselves into disrepute.”
He added that a solution to this would be for the legislation to change and for Pension Wise to deliver this.
This follows calls from Legal and General’s pensions strategy director Adrian Boulding earlier this week, telling FTAdviser that people with these guarantees are balking at the price of regulated advice.
He pointed out that many people will balk at the price of advice, while many advisers do not want to deal with so-called ‘insistent clients’.
“We could break this log jam if the government rescinded this legislation and replaced it with a requirement on the ceding scheme to alert customers to the existence of guaranteed annuities,” stated Mr Boulding.
Mr Loney, agreed in the open letter: “The existing legislation requiring savers with GARs over the £30,000 threshold to seek advice from an FCA authorised adviser should be relaxed as a matter of urgency.
“There is no reason why the Pension Wise service should not be able to provide necessary guidance on GARs enabling savers to take a considered and informed view of their retirement provision.”
He conceded that this will require a change to legislation and the FCA rulebook along with a change in provider procedures if they are required to provide Pension Wise with details of a customer’s GAR.
“However these changes are relatively small and would address a significant problem in short order.”
Mr Loney emphasised that there is an important role for qualified advisers to play in the wider retirement planning market, however casting authorised advisers in the role of gate-keeper for anyone with GAR savings creates a situation that is “unworkable for providers, advisers and customers alike.
“Pension Wise provides a simple solution to this problem”.
The Association of British Insurers has also written to the chancellor of the Exchequer and the chief executive of the Financial Conduct Authority outlining an action plan to tackle the implementation challenges with the new pension freedoms.
The key element is a proposal to create a new ‘customer control’ mechanism that will allow customers to access their pot without having to pay for advice.
This would take the place of the legislative requirement to pay for regulated advice by an FCA authorised adviser where customers have pension savings that have guaranteed annuity rates and are valued at £30,000 or more.
This customer control mechanism should be delivered through a specific guidance session by Pension Wise or the Pension Advisory Service, and enshrined in a protocol agreed with the FCA and the Financial Ombudsman Service.
The Treasury should work with the FCA and Department for Work and Pensions to clarify the definition and valuation of safeguarded benefits, by a change in the law
· Providers to work with the FCA and DWP to clarify the definition and valuation of safeguarded benefits, by a change in the law
Other key elements of the plan include establishing a joint taskforce between the government, the regulators, providers and advisers to deal decisively with the remaining issues, for the FCA to conduct a broader review of the balance of responsibility between customers and providers in light of pension flexibility and for the regulator to set out clearly circumstances and products where advice should be taken.
The ABI has also called on the government to publish Pension Wise data and restart marketing to “ensure maximum take up”. The trade body added that its members is set to start work on developing standardised language on products and charges to help customers consider their options
donia.o’loughlin@ft.com
