Consumers are entitled to free advice on retirement from next April, to help them navigate the new pension reforms announced in March’s Budget.
From April next year no one will have to buy an annuity, but with these new pension freedoms come responsibility and so the Government has tasked the advice industry with providing free guidance to all retirees known as the ‘guidance guarantee’. The cost of these one on one consultations is as yet unknown, but the pensions industry has hit back saying the proposals do not allow providers enough time to set up the system.
Five ‘fee blocks’ of company groups will be responsible for funding the optional guidance, including pension providers, advisers, investment management companies and insurers. General insurers and home finance providers will not be levied to pay for the guidance.
Retirement solutions provider MGM Advantage argues that appropriate industry levies cannot be set until the 2016/17 tax year, and so the first year’s guidance should be funded by Government and used to assess levels of take up for the service.
Andrew Tully, pensions technical director at MGM said: “We believe there are significant issues with all three options for the guidance guarantee levy currently being considered by the Financial Conduct Authority. The fundamental problem is there are two major unknowns: how many people will use the service, and which of the five fee block organisations will benefit and by how much.”
The three options being discussed by FCA the that each block of companies is levied on a pro rata basis, they are each levied equally at 20% per block or they are charged according to the benefits that each block may gain following the pension reforms.
Tom McPhail of Hargreaves Lansdown says that option three is the fairest, but most complicated and subject to challenge.
One of the difficulties in determining the cost of this guidance is no one knows how many people will actually want to take up the offer. Most people are expected to use an internet or phone based system for ease of access and least disruption. Face to face consultations will be on offer, but will cost the industry considerably more.
Calls for More Regulation
For some industry experts the guidance guarantee is simply a sideshow. McPhail says the FCA should instead be concentrating on regulating the way pension savers access their cash on retirement. Currently investors opting to take cash in a lumpsum can access their funds two ways – through drawdown or using uncrystallised funds.
One is regulated by the FCA and the other is not, potentially causing significant problems down the line when savers run out of cash or suspect their money may have been mismanaged.
