Comment – Pensions Guidance

The Chancellor of the Exchequer, George Osborne, has announced this week that ‘Everyone who will be able to take advantage of the new reforms will be able to access free and impartial guidance’ with respect to their retirement options.

This was previously announced by the Chancellor to the House of Commons in his budget statement on 19 March 2014.

The BBC and other news media have quoted the Chancellor as confirming that those people approaching retirement would receive advice. This is not the case.

The Money Advice Service (MAS) & The Pensions Advisory Service (TPAS)
It has also been revealed that the bodies chosen to provide the guidance will be the Pensions Advisory Service and the Money Advice Service. This is the same Money Advice Service that the government has agreed to an independent review of, following concerns by the Treasury Committee into the role that the Money Advice Service plays and whether it is at all effective. Indeed there are concerns as to whether it is fit for purpose.

So I will get free advice right?
Great, so people no longer need to pay to receive financial advice at retirement. Right?

Wrong!

As ever, the devil is in the detail. When speaking to the BBC recently, the Chancellor was very careful with his choice of words. He used the word guidance rather than advice. There is a very significant difference.

Whilst this sounds like a great headline, and it certainly is easy for the Chancellor to deliver a nice simple sales pitch, what does this actually mean and how did this situation come about?

HM Treasury
Following a consultation, it was decided by HM Treasury that this guidance would not be provided by product providers. You know the ones, those companies that are sometimes perceived to charge lots of money to deliver a service that is much maligned by and delivers poor value to consumers.

HM Treasury wanted the guidance provided by an independent and impartial body or bodies.

Now, here’s the important bit….
The guidance proposed by the Chancellor will only sound out peoples options at retirement. The guidance will not provide specific recommendations as to what is suitable for an individual to do in their own circumstances.

If we use the supermarket as an analogy, it’s the equivalent of having someone tell you what is available to buy when you enter the supermarket. This is a far cry from someone advising you what you should be buying & eating in your own circumstances, dietary & health needs.

So how will this work in practice?
At this stage, further work needs to be done by the government and the bodies granted the role of delivering this guidance before we will really know.

It’s free right?
Nothing is free. Free just means something is paid for in a different way.

It is proposed that this service will be paid for in part by a levy on financial advisers. Financial advisers will in turn have to charge their clients.

To say that this seems inequitable would be an understatement. Is the government next proposing that doctors pay for the drugs they administer to their patients or that teachers buy the books to read to their pupils?

What do you think?

Once someone has received their free guidance what do they do next?
That remains unclear until further work is done by the bodies tasked with delivering the guidance have formulated a plan of action. However the range of outcomes could be as follows:

• Consumers don’t bother with the guidance and seek advice from an authorised independent financial adviser
• Consumers receive the guidance and then make their own mind up and proceed to advise themselves
• Consumers receive the guidance and then seek advice from an authorised independent financial adviser

The Chancellor certainly feels that people can then make their own mind up as to how they access their retirement benefits.

Pensions are simple right?
Let’s be clear, pensions are very complicated.

For a member of the public without initiation into the rules and complication involved in pensions, getting to retirement and actually receiving some income will be nothing short of wading through a minefield.

For the Chancellor to say that people can make their own mind up indicates that he either feels the process is much simpler than it is or that people have much greater knowledge than they do.

It may be that in the simplest of cases people feel they can make their own mind up. However…

Connections
Providing true financial planning is never one isolated transaction after another. I’m not talking about people selling financial products (that’s not advice), I’m talking about true financial planning.

Everything is connected.

Decisions that we made 20, 30 or 40 years ago can affect how we plan today. Decisions that we make today can affect the generations to come.

When we undertake advising our clients, many questions will arise including some of the examples below:

• Do I need to save and if so, how much should I save?
• Do I pay extra off my mortgage?
• Should I buy that house?
• What is investing? Why bother?
• Should I invest? And where?
• Should I be buying life insurance? What’s the point?
• What happens if I’m ill?
• What tax planning do I need to undertake?
• How much cash should I keep for emergencies?
• How should I structure my business? What difference does it make?
• If I draw my pension now what would that mean in the future?
• Should I be looking to invest into ISAs or pensions? What’s the difference?
• Will I have enough money or will I run out?
• What is the impact of inflation now and in the future and why is this important?
• How much can I draw from a pension now so as not to run out of money later on?
• When can I start drawing my pension?
• When should I start drawing my pension?
• When can I retire?
• When can I afford to retire?
• What happens if I go into care?
• Can I afford to help my children financially? What is the impact on me?
• Do I need to consider trust planning?
• Should I make a will?
• How can I leave my estate to my family whilst ensuring that I have enough to live off?
• What should I be doing about inheritance tax?
• What’s a lasting power of attorney and do I need one?
• What are the implications of a combination of these options for me?
• What happens if my circumstances change? How will this affect things?

And so on and so on…

Who provides Advice?
Where a consumer seeks advice from an authorised financial adviser, that adviser, as part of their service, is likely to go through the range of options in great detail to ensure that the recommendations made to that consumer are suitable for them.

This will mean that the guidance will be a duplication of what advisers do as a matter of course.

Let’s be clear – Financial advice is the sole preserve of regulated financial advisers.

Keep calm and carry on!

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If you would like to discuss your own circumstances or wish to make a positive difference to your own finances, please feel free to call us on 01626 833225 to find out more.

Please note that the above article does not constitute financial advice.