Lilley warns of means-test advice trap
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Former Social Security Secretary Peter Lilley has expressed concern that IFAs could face future complaints from individuals whose pension savings make them ineligible for means-tested benefits.
Speaking at a fringe event at the Conservative conference in Birmingham this week, Lilley warned that IFAs could be hit with complaints in the future.
He said: “What worries me about means-testing is how that has an impact on financial advice. Effectively, a financial adviser will be prosecuted if he advises someone to save if they are likely to end up in a means-tested zone because the return, net of lost means-tested benefit, is insufficient to justify him or her having saved. I think that is appalling.”
Lilley, who served in Margaret Thatcher’s Cabinet, added that he was in favour of compulsion.
He said: “It ought to be the objective of everybody not to rely on means-tested benefits if one can. To take as the norm that the taxpayer will supplement your income because you have not saved enough is not something that we ought to enshrine in law morally.
“Compulsion does resolve that and I have a feeling that we do have to require people, if they can, to save sufficiently to keep themselves out of means-tested benefits.”
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Readers' comments (6)
Gog | 7 Oct 2010 10:40 am
Unfortunate consequence of advising on long term plans, especially when we have successive governments who keep moving the goal posts. Advising with blinkers on is dangerous, hence the extremely low take up of pensions.
It is why the govt, wants to make NEST an employer sponsored arrangement, that way they can catch the unwary.
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Anonymous | 7 Oct 2010 11:49 am
Well said Mr Lilley for using the "C" word.
Give people an opt out and they will take it and gladly fall back on the tax-payer.
Compulsion is the only way forward regardless of earnings. What you never had, you will never miss!
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Sean | 7 Oct 2010 12:12 pm
As long as you cover the aspect of means tested benefits when providing recommendations there isnt an issue. What if you didnt advise someone to save for retirement and then found that the means tested benefits no longer existed. You would be in exactly the same position.
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Bill Wells | 7 Oct 2010 6:53 pm
If legislation and rule books change in the future (as is certainly going to be the case) then the IFA is on a hiding to nothing.
On the subject of compulsion, we've had that for several generations - it's called paying your taxes (including NI contributions) in return for a decent State pension in old age. Trouble is that the government hasn't kept its side of the bargain and people with no other means than a State pension starve or freeze to death.
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Phil Castle | 8 Oct 2010 9:00 am
I agree with Bills Wells comments with regard compulsion, especially "government hasn't kept its side of the bargain"
I also agree with what Sean has said. For clients due to retire in teh near future, means tested benefits are an issue and we do risk complaints if we advise a client to save and it affects their benefits. For the long term, the crystal ball we have is taht of Bill Wells, whatever happens evidence exists that government will NOT keep their promise. To protect ourselves as advisers therefore, we record all this conversations as MP3 sound files so it shows the advice and the clients opinion as only their opinion matters about what MIGHT happen. In law, I am sure we would be fine as a consumer would have little chance of challenging this in court, our problem is that as regulated individuals, we know that the FOS is NOT a true ADR system, but a politically influenced organisation whose decisions are made based on what suits THEM without listening to any evidence which does not match their pre-conceptions and political bias.
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Anonymous | 8 Oct 2010 9:06 am
I don't think that many people in the UK will starve or freeze to death in retirement for lack of a basic state pension.
On the contrary,the lack of state pension will be plugged by another state benefit, possibly income support. They will also receive council tax benefit, housing benefit if they are renting, etc etc.etc all funded by Joe & Josephine tax-payer.
The point is, compulsory pension contributions means everyone working at least pays something into the pot before possibly taking means tested state benefits.
Why should people choose holidays, sky tv etc over paying into a pension scheme and then come cap in hand to tax-payers who have been socially responsible and saved for their retirement?
This government has to change the system to ensure that someone who pays a pound into a private pension scheme will be a pound better off then someone who doesn't.
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