The Chancellor Goes Forth
The Government had a cunning plan and the Chancellor with great relish outlined his new proposals on pensions reform at the Budget earlier this year. Part of the cunning plan, said the Chancellor in his budget speech, was providing free independent “advice” to members of defined contribution pension schemes as they approached retirement.
It turned out that the Chancellor didn’t actually mean “advice” which of course has to be tailored to an individual’s needs and be given by someone qualified to give it. He meant “guidance”, a far more woolly phrase which means individuals will be told of their options but not actually advised on what option to take. Ask someone giving you the free “guidance” which of the options you should take and they will be obliged to say they cannot advise you.
Those who actually want advice will have to go off to someone qualified to give it and pay for that advice. The technical distinction between “advice” and “guidance” that underpins much of the work of financial service practitioners is lost on the average citizen as well apparently as on the average Chancellor.
The Government is assuming that once they have had the guidance more members will go off to take advice from an independent financial adviser. Sadly it is more likely that members will continue their current aversion to paying for financial advice and act solely on the basis of what they learnt from the free guidance session. So it will be vital that those giving guidance actually take into account a wide range of financial factors for each member.
It has just been announced that The Pensions Advisory Service (TPAS) and the Citizens Advice Bureau (CAB) have been chosen by the Treasury to give this guidance. TPAS will provide telephone guidance and the CAB will provide face to face guidance. The Money Advisory Service (MAS), which had expected to play a part in providing guidance, has missed out.
I have yet to be persuaded that the advisers involved will have the ability, or the time in the short interview envisaged, to give any meaningful help to individuals. I cannot see those approaching retirement popping down to the local CAB and standing in line to get their free guidance. Even assuming well-meaning volunteers at the CAB have the time and expertise to give meaningful help on this complex area. The CAB plays an important role in society, I just don’t see pensions guidance forming part of it.
Equally worrying is that we are seeing a number of potential retirees delaying making plans in anticipation of the guidance guarantee service being made available. This means pressure will be put on the system straight from the start and the CAB and TPAS will need to hit the ground running in April 2015. Yet the Government is still consulting on the issue and does not expect the guidance guarantee to be ready until very close to the 6 April deadline.
We are broadly supportive of the changes announced by the Chancellor at the Budget, but the guidance guarantee is its Achilles heel. There is every danger that even if they take the free guidance those approaching retirement will view the guidance they get as little better than a chocolate teapot. If you are going to trust people, especially those who are currently financially illiterate, to make complex financial decisions over pension savings which are not reversible, then simply telling them their options (even if they are listening) at retirement is too little too late.
What then of the MAS? There have been calls today for it to be abolished. It seems not being given the right to give guidance of limited value may be the final nail in the coffin of the organisation that has a budget of £81.1m for this tax year and which is currently the subject of an independent review commissioned by the Treasury. It needs to come up with a cunning plan!