Why we need an opt-out for guidance

Phil Brown

Phil Brown

As we await the final stages of the Financial Guidance and Claims Bill in the House of Commons, we welcome the amendments that have been tabled which would implement an ‘opt-out’ approach to guidance for consumers at the point of retirement.

These new amendments would require people to specifically choose not to take guidance rather than ‘opt-in’ to it. The significance of this, if introduced, should not be underestimated.

It will mean that the thousands of people retiring each and every week will be better protected and supported as they make the important (and often irreversible) decision of accessing their pension.

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The pension freedoms have given people welcome flexibility over their retirement options, but consumers are also faced with making choices that have huge consequences.

LV= is a firm advocate of guidance and financial advice at retirement as it has been proven to improve consumer outcomes, and we believe the amendments have the potential to equip those approaching retirement to make better informed decisions, and therefore secure a better retirement income.

For most people, what they choose to do with their pension pot is arguably the biggest financial decision they will have to make in their lives. It’s vital people are encouraged to find the best option for them.

This means choosing the right product solution (or blend of solutions) from the right product providers that reflect their needs and preferences. But this can be a complex decision that, without help, many will find too daunting unless they are supported in making this decision.

In fact, our State of Retirement report, published last year, found that retirees buying an annuity in 2016 lost out on around £4,000 over their retirement by sticking with their existing provider.

Only a regulated adviser can make personal product and provider recommendations to a customer. This is why we believe advice needs to be seen as an essential service at retirement, in the same way that it’s accepted you use an expert conveyancer when buying a property.

However, there are always going to be those who would choose not to take advice, whether because they can’t afford it or because they don’t understand the value of it. Our State of Retirement report found 70 per cent of people don’t plan to see a financial adviser.

It is therefore undoubtedly a step in the right direction for consumers that the amendments are included in the Bill. However, critical to its success is that guidance is government backed, impartial and delivered independently of providers. Guidance should also be used as a platform to make customers think harder about the value of professional advice.

The explanatory statement to these amendments does indicate the Government’s intention that this guidance will be provided by the new Single Financial Guidance Body.

Yet, we are concerned there is still a potential that providers could choose to offer guidance services, and we do not believe this should be allowed when in reality that would be more “sales guidance”.