Advisers have raised various concerns over the course of the government’s ‘freedom and choice’ at retirement-reforms, following the Work and Pensions Select Committee’s announcement last week that it is set to launch an inquiry into the freedoms.
The committee is calling for written evidence on take-up, suitability, affordability and independence of the advice, guidance and information available to those approaching retirement, all in order to avoid the spectre of another mis-selling scandal.
FTAdviser spoke with several advisers about what they would have the government do to improve post-pension freedoms.
Greg Heath, managing director at Derbyshire Booth Financial Management, suggested the whole process should be simplified by firstly cutting down on the paperwork in retirement packs and secondly ensuring pension providers only send one letter, directing them to seek out an IFA or speak to the Money Advice Service or Pension Wise.
“Mas and Pension Wise will discuss the broad options with clients and then signpost to an IFA or suitable website such as Unbiased if advice is required.
“The best bit is that the pension provider can pay for the advice out of the pension pot if you prefer, which is important to the less wealthy in our society as they worry the costs of advice will suck their pension fund dry when that clearly is not true.
“I am convinced that clients don’t understand the information, but just see the tax-free cash and pension, tick a box and sign. Pension providers know this and have been taking advantage of it for decades.
“In essence I think the mountain of regulations have played right into the pension providers hands by creating confusion.”
Matthew Harris, IFA and owner of Dalbeath Financial Planning, agreed that while the guidance was a step in the right direction, many people requesting lump sums from their pension funds are shocked by how much tax is deducted.
“We believe that pension companies should have to spell out how much the consumer will receive after tax of each lump sum they withdraw, and how they should go about reclaiming any overpaid tax. This should be expressed in pounds, not percentages.”
He also added that access to advice for people in occupational money-purchase schemes is very restricted and as a result very expensive.
“At present the regulator says that a ‘normal’ IFA cannot assist with these schemes, because they may contain guaranteed benefits. However, most of these schemes don’t offer any such guarantees, and are no more complicated or attractive than a standard personal or stakeholder pension plan.”
Mr Harris believes that by forcing clients who are in such schemes to only get advice from a pension transfer specialist means that most clients miss out, because the fees charged by specialist advisers are too high for anyone with a pot less than £100,000.
“The FCA should change the rules so that a pension transfer specialist is only required for pension schemes containing guaranteed or secured benefits such as guaranteed annuity rates, defined benefits or a guaranteed minimum pension.”