PENSIONSANDSAVINGS.COM

25 July 2014

The Guidance Guarantee – a whole new industry of impartial guides?

Important for customers to understand that ‘Guidance’ is not ‘Advice’

Great opportunity for the advice sector

This week, the Treasury released more details of its plans for every DC pension saver coming up to pension age is offered free, impartial financial guidance on their pension options.  The Service will be funded by a levy on financial firms, who have an interest in its aims of ensuring customers are better informed about their retirement finance options before committing to buy any product. The Guidance will be entirely separate from any provider of at retirement financial products or services and focussed on financial education and financial planning.  Guidance will be available for each pension pot, so people with more than one pension fund will be entitled to more than one guidance session.

Guidance is not ‘Advice’:  Guidance can help people consider the important questions they need to ask before making decisions at retirement – something that should have been in place long ago.  However, it will not provide the answers – customers will be left to make their own decisions – so many may need expert independent financial advice to help them.  It is really important to understand that this Guidance is not the same as regulated advice. If the Guidance Session is run properly, customers will realise the complexity of the decisions they face and may be more likely to consult a regulated independent financial adviser for individual help to ensure they are making the right choices.

Is MAS up to the task?:  The officially approved guides will be required to operate to consistent, robust, well-enforced standards, overseen by the FCA.  An expert team at the Treasury will work with TPAS (The Pensions Advisory Service), MAS (Money Advice Service) and an advisory board of experts to decide how best to provide the information and guidance.  However, I agree with Andrew Tyrie of the Treasury Select Committee that there are big question marks over the ability of the Money ‘Advice’ Service – which does not actually give ‘Advice’, only Guidance – to deliver a sufficiently high-quality service for customers.  Certainly, the MAS annuity engine and information system has fallen woefully short of even the most basic standards of adequacy for customer needs.  MAS took weeks to update its information after the Budget, its annuity quote system contains only a very few providers and the system does not contain any warnings on its single life quotes that partners will be left with no pension.

Guides will not FCA-authorised – will customers be sufficiently protected?: The Guides will not be authorised by the FCA.  For the initial phase, the Treasury will control the approval of firms or organisations to carry out the work.  In order to ensure this Guidance is useful, the FCA is consulting on what the guidance should cover.  It needs to be comprehensive enough to equip people to make decisions and also to help them understand the benefits of paying for professional advice if they are not sure what best to do.

Government wants this new National Retirement Guidance Service to become a strong trusted brand:  The intention is to build up a new, national brand of ‘Retirement Pension Guides’ who consumers will trust and be happy to go to before making retirement decisions.  Building trust is vital.

A range of channels will be offered including phone, on-line and face-to-face:  The Treasury suggests everyone reaching pension age will be signposted by their pension provider to a centrally-run telephone number and on-line service.  Providers must inform their customers about the guidance 4 to 6 months before pension age and again 6 weeks before.  Individuals will call or register on-line and can choose whether they want to just use web-based, telephone-based or face-to-face sessions.  Many will not want to actually meet a Guide in person, so offering a range of different channels is sensible.

What will the guidance cover?  The guidance will be tailored to the individual’s specific circumstances and will cover their options at retirement.  Individuals will be asked to come to a guidance session with essential information on their pension fund and personal circumstances, in order to ensure the session can be tailored to their own needs.  Pension providers will have to give all customers standardised information about their pension savings – any guarantees, the value of the funds and any special features.  The Guidance should explain the tax implications of any choices they may make, take account of their other income and dependants’ needs and also consider whether they are still working and therefore help them realise that they may not need to touch their pension at all.

What will the guidance not cover?  The guidance will not tell anyone what products to buy, which providers to use or which adviser to go to.  For individual product recommendations, people will be told they may need to consult an independent financial adviser.

Could be great for financial advice industry:  The new Guidance sessions could be a fantastic opportunity for the financial advice sector.  At last, individuals may start to understand the difference between a free guidance session, which tells you the important questions but doesn’t give you any answers, and professional, expert advice which you need to pay for, but which then ensures you make good choices.  With a decision as important as retirement, people may increasingly want the reassurance that they have used their pension savings wisely.  In the past, too many people believed financial advice is ‘free’.  Why should experts be expected to work for nothing?  Having clarity on the difference between guidance and advice could hand advisers a golden opportunity to demonstrate their value.