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.
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.
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.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”.
Guidance must be independent of providers in order to give consumers a holistic view of the market and of all the options available. Otherwise, there is a risk that unscrupulous providers will take the opportunity to funnel customers solely to their own products and will not encourage customers to choose what is best for them, resulting in an unsuitable decision that cannot be undone.
Therefore, we believe that providers should only offer ‘information’ and the Government should make clear the distinctions between regulated advice, impartial guidance, and information, so consumers are completely clear on the differences.
Some people may think that this reform doesn’t go far enough. Throughout the lifetime of the Bill to date, the inclusion of what was called ‘default guidance’ has been flirted with.
Earlier this year, the Government removed the amendment to the Financial Guidance and Claims Bill that could have meant people were required guidance when accessing their retirement funds.
However, despite initial concerns that the reform was being watered down, we’re pleased to see the current amendments would still require pension schemes to make sure people accessing their savings are referred to guidance and have either received it or opted out.
It is therefore an extremely positive move that the amendments have been tabled and it will provide a clear ‘nudge’ to guidance. This is particularly significant as there is currently a low take-up of Pension Wise, despite very positive feedback from those who have used it.
The Bill will send a strong message that Government believes no one should be left unsupported when it comes to accessing their pension.
While people are – rightly – able to do what they choose with their money now, we believe Government and industry alike have a responsibility to take risk out of product distribution and ensuring people are significantly more educated and supported to make the best decision for them.
As the Bill awaits its final stages in the House of Commons, we urge MPs to accept the amendments as there are thousands retiring each week that could be better off if they sought guidance before making a decision.
The success of this will also lie in industry supporting the FCA as they are tasked with implementing the rule. It’s crucial the FCA gets it right as we know consumers will often choose the path of least resistance, so the process must be as smooth and as user-friendly as possible.
We look forward to working with the FCA to help the regulator determine the best way to have a conversation about guidance with retirees and ensure they get the best outcome from their hard-earned pension savings.
Phil Brown is head of policy at LV=
