From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Guidance Guarantee to be called ‘Pension wise’

    Guidance Guarantee to be called ‘Pension wise’

    12 January 2015

    • At last the Guidance name is released – ‘Pension wise’ to point people in the right direction for their retirement journey
    • Will need extensive publicity campaign to establish as trusted brand – this is not Advice
    •  Could be great opportunity for IFAs, helping customers appreciate relative value of independent advice and explaining hidden commissions
    •  Still need second line of defence or pensions passport to better protect customers

     Guidance brand name unveiled – ‘Pension wise – your money your choice’: The long-awaited announcement of the Treasury’s new name for the Guaranteed Guidance service has been released. It will be called ‘Pension wise: Your Money, Your Choice’. The aim is to build it into a strong, distinctive, trusted national brand. Pensions are complex, so people need help to navigate the landscape and ‘Pension wise’ should provide a pathfinder and information to help people on their retirement journey. It is really important to invest in improving financial education for our aging population.

     Relying on providers to ‘signpost’ guidance is not enough – look how they failed with OMO: The FCA findings of providers failing to alert customers properly to their open market option to shop around for a better annuity, strongly suggests pension providers cannot be relied on to ensure people make the most of the Guidance. Even a standard piece of paper in wake-up packs is unlikely to be sufficient.

     Need extensive publicity campaign to ensure ‘Pension wise’ becomes strong recognised trusted brand: The new service must be widely marketed by Government with a broad publicity campaign to ensure people know what it is, and use it. Increasing financial awareness is long overdue and the pensions industry has taken advantage of poorly-informed customers for far too long.

     This could be the fore-runner of broader financial education for all ages via auto-enrolment: I hope this will be the fore-runner of a much broader push for financial education to be embedded into auto-enrolment. It should be a requirement of all auto-enrolment pension schemes that providers offer education to help people make sensible choices from an early stage. Leaving it only to later life is not enough.

     Still work in progress: This project is still a work-in-progress. The Pensions Advisory Service (TPAS) and Citizen’s Advice Bureau (CAB) are hurriedly trying to sort out further details and recruiting new staff. They will be running pilot schemes prior to April, to learn what works well with the public. In fact, people can register their interest and potentially take part in the pilots by visiting www.gov.uk/pensionwise. Today’s announcement still leaves unanswered questions. For example, we do not yet know:

    • the content covered by the Guidance
    • what those who give the guidance will be called (‘Guides’?)
    • what information will be needed before booking an appointment
    • what hours the service will operate
    • how many people are expected to take it up
    • what the written Guidance Session record will look like.

     Still no pensions passport! The FCA is still not forcing pension companies to issue standardised pension statements, so that customers will have the vital information about their pension that they’d need to get the most from their ‘Pension wise’ guidance session. Apparently, the pensions industry is working on this, but action is long overdue.

     ‘Pension wise’ can highlight the value of paid-for advice – route planners, timetables, maps or apps to reach your destination, but not a limousine service: The free guidance session will provide information and explanations of the complex array of choices open to people when reaching their pension age, but the free guidance can only take you so far. At the end of the session you will still be left to make your own decision and find the best solution for yourself. This could be likened to having route planners, bus timetables, train timetables, maps or apps to find your way. But if you want a chauffeur-driven limousine to take responsibility for getting you to the right place at the right time, you would need to pay for expert individual specialist financial advice. The Pension Wise service should tell people how to find paid-for advice.

     ‘Pension wise’ should explain the hidden commission costs and charges of buying without advice: The Pension wise Guidance needs to help people understand the relative costs of advice vs. buying direct. At the moment, most people do not realise that buying an annuity direct from their pension company still costs them money as the provider deducts commission (around 1.5% of their fund) when they sell you an annuity. On a £30,000 fund, your pension provider could take £500 without ensuring you are buying a suitable product, whereas with an adviser you will be paying for help to do the right thing. The whole issue of hidden commissions that customers pay, which can cost more than paying an upfront advice fee, needs to be explained.

     A great opportunity for financial advisers: The free guidance session should help people understand the complexity of pension decisions. In the past, the majority were just herded into their pension provider’s standard, irreversible, single life annuity. Their providers did not help them to make the right choices. Those who used a financial adviser had the best chance of buying the right product at the best rate. But too few knew how the annuity market worked. There will be even more options available to people in future and, therefore, expert professional independent advice could be even more valuable.

     ‘Pension wise’ is a good start – more work to do to protect customers properly: The announcement of the Guidance service name is an important step forward, but I believe more should be done to help people who may not actually receive the Guidance, or not understand it. I think a duty of care should be placed on providers to ensure they ask the right questions and explain issues simply and clearly for their customers. This second line of defence is vital to ensure people make the most of the new pension freedoms.

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