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Targeted decumulation products could replace advice, MPs told

Targeted decumulation products could replace advice, MPs told
Nigel Peaple told MPs better products could replace the need for advice

Properly designed decumulation products could replace the need for financial advice at the point of retirement, the work and pensions committee has been told.

Nigel Peaple, director of policy and advocacy at the Pension and Lifetime Savings Association, told the MPs at a hearing this morning (February 23) a targeted product made up of a mixture of cash, investments and guaranteed income, could effectively replace the need for advice for many savers entering retirement.

Though he added, the committee's recommendations around enhanced guidance and limited advice, as proposed in its report in January, were also welcome.

He said: "On the one hand some of the proposals that have come from this committee at the last stage are very welcome - this idea about limited advice and enhanced guidance.

"And there is also the suggestion that Pension Wise should be at least trialling the idea of automatic appointments, and that's a good idea too.

"But PLSA's membership have been thinking about this issue of how to get good outcomes in retirement, so not so much about the advice and guidance bit, that's why we have suggested that really we should have a thing called guided retirement income choices - the idea that there would be a product to the solution at decumulation that would meet all of the person's needs, a mixture of some cash, some higher level investment fund that could be drawn as appropriate and a guaranteed income for later life.

"And in that world where we envisage that you have product standards, or standards for these solutions, then we believe you wouldn't need to have the same level of extremely sophisticated and expensive advice as is generally felt to be necessary at the moment, because you would have had an employer and the trustees of a pension scheme choosing a product that's basically fit for purpose."

He likened to process to buying a car, whereby "you don't have to understand everything about an engine to get one that works" because there is an understanding that it has passed its various tests, including an MOT.

The WPC in its report, which focused on pension access, titled 'Protecting pension savers—five years on from the Pension Freedoms: Accessing pension savings' had highlighted a number of areas where savers needed more support.

The MPs had found a reluctance from pension providers to operate too closely to the advice/guidance boundary and suggested there might be a definition between advice or guidance, such as enhanced guidance or limited advice, which could help to bridge that gap.

They recommended the FCA should define enhanced guidance as "guidance on the options available which is tailored to an individual dependent on the information they provide, without a recommendation", whereas limited advice would be defined as “a recommendation made to an individual based on limited or partial information about them”.

Rob Yuille, head of long-term savings policy at the ABI, who also spoke at the hearing, agreed with the committee's recommendations, and said the government and regulator should look more closely at the issue of guidance providers inadvertently crossing the regulated boundary, be it by recommending people save more based on their personal circumstances, which could be seen as giving advice, or sending out emails versus letters, which could be construed as marketing.