Customers with guaranteed annuity rate pots over £30,000 should not be required to obtain advice but should get guidance from Pension Wise on whether they should make a withdrawal says Royal London.
In an open letter to pensions minister Ros Altmann, Royal London has asked for the Pension Wise service to be adapted to allow it to give specific withdrawal guidance to customers with guaranteed annuity rates.
Currently all savers with a guaranteed annuity rate built into their pension fund are required to seek the advice of an FCA authorised adviser before accessing their fund if the fund value exceeds £30,000. Royal London says many of its customers with this type of guarantee have expressed extreme frustration at being charged up to £1,000 for advice on whether to withdraw. The provider says many savers with modest savings believe these fees are disproportionate to the funds they want to access.
It argues that some advisers are understandably also unwilling to provide advice to those with modest savings as the fees generated are commercially unviable or the risks associated with advising customers with guarantees are unacceptable, especially if the advice is subsequently ignored by the customer.
Royal London wants customers who have been through a guidance session with Pension Wise that fully explains the value of the guaranteed annuity to be free to dispense with their pension fund as they wish. The session would be free to the customer.
Royal London pensions specialist Fiona Tait says: “When establishing the rules Government sought to protect customers with guarantees in their pension. But it failed to anticipate the extent of pent-up customer demand to access their “own money”. This is creating genuine problems for customers, which pension providers cannot address under current rules.
“Pension Wise was set up specifically to provide guidance for everyone eligible for pension freedoms. It is only right that Pension Wise should be the first port of call for customers including those with guaranteed annuities. Pension Wise have proven expertise in all aspects of pensions and are genuinely impartial. It follows that providers should be able to accept customer requests for pensions encashment if they can prove they have been through the Pension Wise process and understand the implications of giving up guarantees.
“It goes without saying that there will be an important role for qualified advisers in the retirement income market but this will be largely for those with more complex needs or with defined benefit pension pots above £30,000 contemplating a transfer to the defined contribution pension regime where advising on the potential transfer is a more specialist skill.”