Jim Aitken gives his views on the guidance guarantee
So the deadline has passed for responding to the FCA’s consultation (CP14/11) on the retirement reforms and the Guidance Guarantee. Submissions are in and we anxiously await the results.
The objectives of the Guidance Guarantee to “empower consumers to make informed and confident decisions on how they use their DC pension savings in retirement” through free and impartial guidance are laudable. Putting it into practice by April 2015 when the legislation and standards are a long way from being finalised will be ‘a challenge’ to say the least. The Government’s chosen delivery partners– TPAS and MAS – have a mountain to climb. It seems like “mission impossible”.
Like many others, we’ve commented about the complexity of some of the new options in the draft Taxation of Pensions Bill and how they will make it even more difficult to deliver the Guidance Guarantee.
Most people know little about pensions. Even those that do will struggle to understand the options and make the right decisions. The “job for life” leading to retiring with a good final salary pension is fast disappearing. In its place come people with a number of pensions accumulated over their careers with several employers - probably a mix of DB and various types and sizes of DC pots.
Steve Webb is reported to be looking into the idea of a central resource for storing details of everyone’s pensions. It’s a great idea but if it happens it will be years away. Meanwhile will people be able to collect all the details ahead of their guidance session? And if they do, will the ‘guider’ be able and willing to analyse them in the time available? If not, any guidance will be limited at best and misleading at worst. Or will the ‘guider’ put them in the “too difficult box” and suggest they seek independent advice?
This may be good news for IFAs who can provide a valuable service by advising on the holistic situation and personalised options but will clients be prepared to invest the time and money to achieve this or will they take the easy option? Or the wrong one! We know that people are advised to shop around before buying an annuity. How many actually do that?
The big question is how extensive and thorough the guidance will be. Will it take account of each person’s full circumstances, state of health, income needs and tax position or will it be superficial? Even with a booked appointment time for the session, how long can the guider afford to spend on each case? And having had their session, can the individual re-contact them at a later date for further guidance?
So many questions to address. So little time to next April!
There is a simple answer. Having taken a huge leap in giving people more freedom of choice, the Government needs to make the choices simpler. For example, how can anyone possibly understand the term Uncrystallised Funds Pension Lump Sum? How about “Cash Withdrawal” instead? Let’s keep it simple.
Oh and did I mention there’s a General Election next May!
Jim Aitken is Group Head of Marketing at aquilaheywood, a supplier of life and pensions administration software solutions in the UK