Your IndustrySep 22 2017

Lords demands guidance service promotes IFAs

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Lords demands guidance service promotes IFAs

An amendment to the rules for the single financial guidance body which would have seen the topics it tackles widened was defeated in favour of the organisation instead flagging advice.

During a debate in the House of Lords earlier this month, the peers pushed for the single financial guidance body to tackle other sources of retirement income, including housing wealth, to enable members of the public to make "fully informed decisions."

Baroness Greengross said this was needed because of the profound changes since pension freedoms were introduced.

Since April 2015 and the introduction of pension freedoms, from the age of 55 there are a greater number of options for using the pension pot, including taking the pension as cash, keeping the fund invested or purchasing an annuity. 

Baroness Greengross said: "Accordingly, I welcome the broad drafting in this Bill of the objectives and functions of the single financial guidance body and, in particular, the recognition of provision of advice as well as guidance, and the continuation of the vital role played by the Money Advice Service in support of the financial capability strategy.

"Financial decision-making is complex and retirees must consider their long-term, not just their short-term, retirement income needs. 

"The single finance guidance body needs to encourage this by ensuring that consumers understand the full range of options available, including the potential role of any housing wealth."

Baroness Greengross pointed out consideration of the potential role of housing wealth is already included in the pensions advice allowance, which allows people to withdraw £500 tax-free from their pension pots on up to three occasions, to pay for financial advice on their retirement, she said.

"I welcome that inclusion and think it should be extended," she added.

She pointed to the Equity Release Council’s estimates that over-55s in England possess about £1.8trn in housing wealth, and that is expected to double to £3.6 trillion by 2036. 

Meanwhile, the average value of a defined contribution pension in 2012 to 2014 was £30,300. 

She said: "I would want not to push people into equity release but to look holistically at their assets. 

"In one important area affecting retirement assets, the FCA’s prediction means that approximately 2.6 million interest-only mortgages will reach maturity over the next 30 years, with estimates that 48 pe cent of borrowers may not have enough money to fully repay their loan. 

"It is not surprising that statistics from the council’s spring 2017 market report indicated that the use of property wealth to fund lifestyle and health in old age is growing rapidly, and is likely to continue to grow in the coming years."

Baroness Finlay of Llandaff (CB) backed the amendment, as did Baroness Kramer.

Baroness Kramer said: "We need that revision for this single body to encompass the whole of the arena of life as it is today.

"If people are not signposted and sent through a guidance mechanism to get that financial advice, it seems to me they are in very murky waters. 

"It (equity release) takes a very sophisticated financial expert to work their way through this. It makes pensions look simple, and I hope very much that the government will take on board and make use of this excellent amendment.

However Lord Young of Cookham said the new single guidance body should not provide advice on specific products but instead flag this is available through financial advisers. 

He said: "Its role is to provide general information and guidance on the options open to people so that they can make their own more informed financial decisions. It is not in the remit of the body to provide financial advice. 

"In some instances, though—this was ​touched on during our debate—it may be that the body would need to refer an individual to an independent financial adviser, who would be able to advise them which products were the most suitable in their circumstances; I think that is what the noble Baroness, Lady Kramer, was implying. 

"That in itself is a helpful service; we know that often, people are reluctant to seek financial advice or unsure of where to go. 

"The body and its partners can play a role in breaking down those barriers, enabling people to understand when it will be beneficial or necessary for them to seek financial advice.

Following Lord Young's comments, Baroness Greengross withdrew her amendment.

emma.hughes@ft.com