PensionsMay 8 2018

Government criticised for passing the buck on guidance

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Government criticised for passing the buck on guidance

As the bill passed through its final stages in parliament in the past weeks a requirement on providers to refer clients wishing to opt out of the guidance to an 'independent and impartial body' such as the new single guidance body, has been dropped.

Instead, providers will continue to be able to sign off any opt outs in a similar way as they do today.

However, the government left it to the Financial Conduct Authority (FCA) to decide whether the 'independent and impartial' requirement would be reconsidered when the final rules around the default guidance are made.

Stephen Lowe, communications director at retirement provider Just, said it appeared the buck was passed deliberately and warned this meant it could take months, if not years, for a decision on the matter to be reached, especially if the regulator has to consult on it first.

Default guidance, the idea of making people seek guidance before they can get their hands on their pension pots unless they expressly opt out, was raised by the Work & Pensions select committee in a report in December as well as the House of Lords in an amendment to the government's guidance and claims bill.

The idea was to mandate scheme managers and trustees to ask people at the point at which they seek to access or transfer their pensions, whether they have received guidance from the government's incoming financial guidance body.

In contrast, current Financial Conduct Authority (FCA) rules simply state providers must signpost their clients to Pension Wise but they do not need to check whether they have actually sought assistance from the service.

The government could have written the requirement into the legislation which would then have had to be implemented by the FCA.

But it wavered on the issue and eventually removed the amendment on 25 January, and replaced it with a rule requiring providers to ask clients whether they have taken guidance, similarly to the process already in place.

Mr Lowe said: "At the moment people can just tell their providers 'I’d like to opt-out' but we say it should be a requirement to get the guidance body to sign it off and not the providers.

"We think the government have opted out of giving a strong direction to the FCA to say the opt-out process should be independent and impartial of the provider.

"The worry is when the FCA run [consultations] these can take a number of years so there is a danger we may not get a conclusion for a very long time."

It is possible the government's decision was influenced by a negative sentiment from providers towards the idea.

AJ Bell, for instance, told FTAdviser after the committee's proposals were published in December people would not take well to being stopped from accessing their pension cash at the point of retirement.

The firm warned of waves of complaints and said providers could not be expected to be responsible for referring their clients, which was "no small task".

Part of the problem, Mr Lowe said, was the proposal had, at times, misleadingly been dubbed "mandatory guidance".

But he said: "It is not mandatory because the consumer has the ability to opt-out."

Indeed, in its last reading in the House of Lords on 1 May Baroness Buscombe suggested Baroness Altmann had been advocating mandatory guidance, saying "I fear that my noble friend Lady Altmann is looking for mandatory guidance, but we simply do not believe that that is right".

Baroness Altmann objected to that claim.

She said: "I was indeed most disappointed that the minister seemed to suggest that we were calling for 'mandatory' guidance, and I had to stand up to correct that for the Hansard record.

"What we are calling for is usually called 'default' guidance and I think of it as 'auto-enrolment' into guidance that people can opt-out of.

"However, if the opt-out 'process' merely consists of telling someone on the phone that you don't really want it, perhaps after they have enticed you to find out more about their products or use their 'expert' helpline, then people will still end up not receiving the help they need."

The FCA could not comment on legislation that has not yet been passed but it is understood it would have to consult with industry on any changes to its existing rules.

A DWP spokesperson said: "We want more people to access free and impartial pensions guidance, with new measures signposting towards the pensions guidance that the Single Financial Guidance Body will provide.

"It is common practice for the FCA to take the lead where equivalent measures need to be introduced in contract and occupational schemes because the FCA covers more members and can respond quickly when changes need to be made."

carmen.reichman@ft.com