A whole host of questions remain unanswered as the consultation on Budget reforms closes

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It was a slip of the tongue but a revealing one. Announcing his groundbreaking pension reforms on Budget Day, Chancellor of the Exchequer George Osborne said all those approaching retirement would be offered ‘advice’ on how they should invest their accumulated savings.

The Treasury had soon watered the word down to the less loaded ‘guidance’.

The mistake was an embarrassing one, particularly given the role that Osborne’s department plays in overseeing the financial services system.  Nevertheless the boundary between ‘guidance’ and ‘advice’ is a slippery one. 

This week saw the deadline for responses to the government consultation on how its Budget changes are to be implemented.

The biggest cause for concern is how the new duty to provide guidance will work.

Dame Jane Newell, chair of the John Lewis pension scheme, voiced the concern of many when she spoke at PI’s Workplace Pensions Live conference last month.

It’s inconceivable that schemes will be able to afford that

She said: “It’s not clear what that (Guidance Guarantee) means, it’s not clear who is going to pay for it, it’s not clear whether it means a session once a year for a lot of people or whether it’s talking about individual one to one advice. It’s inconceivable that schemes will be able to afford that and certainly no sponsors that I know are willing to pay for that.

“We need a lot more clarity.”

Responding to questions at the launch of Scottish Widows’ annual retirement report, pensions minister Steve Webb shed a little light on how it will work.

People get obsessed about a 45 minute chat but this is a whole ecosystem

He said: “Face to face will be an option, but we expect a lot of people to this over the phone. One conversation is not enough but it’s better than none. People get obsessed about a 45 minute chat but this is a whole ecosystem.”

Given the low level of trust in financial services providers, a consensus has emerged that any guidance must be truly independent. 

Webb showed that he is alive to those concerns when he admitted at WPL that he was ‘nervous’ about insurance companies providing guidance.

“You need somebody in the room who is on your side not somebody who wants to flog you something.”

He’s not alone in Parliament - a poll carried out by YouGov showed that just 4% of MPs believe pension providers are best placed to provide impartial guidance

The Association of British Insurers has seen the writing on the wall, acknowledging that utilities are best placed to provide the Guidance Guarantee, while leaving the door open for providers to play a role in the future.

Members unable to meet their needs via official channels will be open to exploitation by fraudsters

However existing sources of advice are not geared up to meet the level of help that will be needed, argues Fidelity head of retirement insight Alan Higham.

He points out that The Pensions Advisory Service (TPAS) currently handles just 10,000 retirement queries from members of the public per annum, a drop in the ocean compared to the hundreds of thousands of members who will be eligible for the Guarantee. Higham raises fears that members unable to meet their needs via official channels will be open to exploitation by fraudsters pretending to work for TPAS.

He argues that providers should be allowed to guidance as long as they subscribe to set of standards.

However the industry is not convinced, judging by a poll of Pensions Management Institute members which shows two thirds disagreed that prescribing minimum standards would be sufficient to ensure truly impartial guidance.

Just because existing capacity isn’t adequate should not be a deal breaker.

Industry consensus is coalescing though around the idea that a levy is required to fund beefed-up guidance provision.

We already have a levy on pensions and we could use that levy at a slightly higher rate

Nest (National Employment Savings Trust) argues in its response to the Treasury for a levy to be applied across the whole financial services industry, while rival mastertrust NOW: Pensions suggests the cash call be limited to companies that invest on behalf of pension savers.

Buck Consultants head of pensions policy Kevin LeGrand, less controversially for asset managers, suggests that the guidance could be funded centrally from National Insurance contributions.

Webb is clearly open to the levy concept, telling WPL that a levy could help to fund a common pot. This structure, he added, would be more efficient than providers and schemes offering essentially the same information to individuals who have moved jobs several times.

He said: “We already have a levy on pensions and we could use that levy at a slightly higher rate to provide a pot of money to pay for the infrastructure.”

Ros Altmann, former government pensions adviser goes further, outlining a vision of a new national retirement guidance service, which could build on the work of TPAS.

This would be more about financial planning than selling products

“This would be more about financial planning than selling products and at retirement is just one part: it needs to be much broader and embedded in auto-enrolment.

And a levy is the right way to pay for it, she argues: “What is the point of a levy that pays for regulation but doesn’t help sweep up the mess?”

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