The government’s focus on the guidance guarantee is missing the point, as it is the inevitable interaction with providers that follows it that really matters says Fidelity.
Responding to the government’s consultation on freedom and choice in pensions, which closes today, Fidelity retirement director Alan Higham, argues that whoever provides the guidance guarantee, provider interaction will be unavoidable, and is calling on the FCA to launch a review of minimum standards for guided sales.
Fidelity is one of several providers arguing that expert help will be needed more than once.
Nest has thrown its weight behind the guidance guarantee being paid for through a levy on the financial services sector and delivered through a centralised body.
But The People’s Pension does not want the large proportion of its customers who will not need expensive guidance because they will simply draw the cash to have to cross-subsidise wealthier individuals.
Buck Consultants supports the idea of a levy, but wants it to come from National Insurance contributions. The consultancy says the practical problems of delivering the guidance guarantee free through different types of schemes means a centralised solution is required.
Higham says: “It would be a mistake if HMT thought that the guidance guarantee can exist as a distinct conversation that will meet all customers’ needs. We don’t believe it can. While such a conversation delivered by someone other than their provider might be helpful, we are concerned that take-up will not be universal.
“It can’t be ignored that fewer than 1 per cent of people who might consider retirement each year are actually calling TPAS today. Conversely, everyone has to engage with their provider or hire a broker or adviser to do so on their behalf.
“We believe it is essential that providers or brokers delivering guided sales should have to provide guidance at least of the standard set by the FCA for the guidance guarantee. We are calling on government and the FCA to put as much effort in to ensuring providers and brokers meet minimum standards for delivering guided sales as they are doing in defining the guidance guarantee.
“By definition, guidance provided by someone intent on selling a product or service will not be impartial and we understand the concerns about providers and brokers giving it. We believe the answer is for the FCA to apply minimum standards to providers and brokers who provide expert help at retirement.
“We were campaigning for the introduction of a voluntary Kite Mark before the Budget but, with the new freedoms announced, feel the case for minimum standards for guided sales is now stronger than ever and the FCA must address this issue.
Nest chief executive Tim Jones says: “The immediate challenge is to get a model up and running for April 2015 that is proportionate and cost-effective. We believe the most appropriate short-term solution is a tightly defined guidance guarantee delivered by an independent third party. This should be funded by a levy across the financial services sector to make sure those with the smallest pots don’t shoulder disproportionate costs.
“For the longer term, we’ll be considering carefully how best to engage and support our members to reflect their needs.”
Buck Consultants head of pensions policy Kevin LeGrand says: “The intention for guidance is to be free to the member at the point of delivery, but this ignores practical problems with funding it under different types of schemes. It is vital to ensure full availability on a level playing field basis to all members of all schemes, so it should be funded centrally, from a small levy taken from National Insurance contributions.
“If the conclusion of the consultation is that a more widespread guidance system is needed, we envisage a role for the government in sponsoring the production by specialist institutions that are independent, including of the government, of generic information and other materials to complement the more targeted contributions from trustees, employers, providers and their advisers.”
Sackers partner Fiona Franklin says: “Planning for retirement needs to start well in advance of the time a person actually retires, so that the tax implications and relevant investment considerations can be fully worked through and suitable decisions taken. A more appropriate timeframe for providing guidance on retirement options would be at least ten years before normal pension age and, with the anticipated rise in drawdown, guidance is likely to be needed beyond retirement too. We think that the possibility of centralised, web-based guidance should be considered. This may be a more practical, cost-effective and quality consistent means of giving guidance to most members than individualised face-to-face contact. Such a tool would take time to build and test.”
The People’s Pension chief operating officer Jamie Fiveash says: “Compulsory automatic enrolment contributions are modest, and the majority of the 6-8 million individuals who will be automatically enrolled, will not have funds exceeding £15,000 in the next 10 years. Guidance in these cases is likely to be quite straightforward and we would not want to see them disadvantaged through cross-subsidising individuals with greater pension wealth and more complicated circumstances.”