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Baroness fears RDR will hit annuity advice

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Influential campaigner Baroness Greengross is preparing to lobby senior Government ministers over concerns that people with small pension pots will be unable to access independent financial advice after the RDR.

The issue relates to the role advisers play in helping customers to shop around for a retirement income.

Research from Partnership suggests less than half of annuitants who have shopped aro- und for a retirement product know what an annuity is and 75 per cent of those who choose an enhanced annuity do so because it is recommended by an adviser.

Last September, Partnership managing director of retirement Andrew Megson warned that the RDR will cause “significant consumer harm” as IFA numbers fall and fewer people with small pots will be able to access advice.

Money Marketing was invited to report exclusively last week on a House of Lords’ summit, chaired by Greengross, seeking to address the perceived advice gap that will be created as a result of the RDR.

Greengross (pictured), who is chief executive of thinktank the International Longevity Centre UK, will present industry concerns to Government members, including Cabinet Office minister Oliver Letwin, a key adviser to Prime Minister David Cameron.

She said: “As we move into a defined-contribution world, where decumulation decisions are made by individuals, more people are going to need financial advice. At the ILC, we are concerned that the RDR could lead to a reduction in the availability of advice. We need to ensure that people with small pension pots do not lose access to advice altogether.”

The ILC will produce a policy paper in March outlining reform options which the Government could pursue.

In an online poll conducted by earlier this month, 88 per cent of respondents said the RDR will create an advice gap for people with small pension pots.

Partnership chief executive Steve Groves said any short-term solutions will need to be delivered within the current regulatory framework. He said Treasury ministers should consider reforming peoples’ default options at retirement in order to improve outcomes.

He said: “The Treasury should look at the retirement products people default into. For example, at the moment, somebody who is married and does not make an active decision will default into a single-life annuity rather than a joint life. But if you are married, a joint-life annuity is more likely to be suitable, so that is something that needs to be looked at.”

Outgoing Aifa director general Stephen Gay says spiralling regulatory and compliance costs will also hit adviser numbers.

He said: “People who take advice almost invariably end up utilising the open market option, which on average will lead to a 20 per cent increase in their annuity payment. “The reality is that advice is becoming less available and the RDR will make that situation worse.

“But this is not just about the RDR because there are all sorts of other costs that are borne by advisers. It concerns me that there is no one person or authority that has the job to look at that overall burden of cost on IFAs and say, at what point does the straw break the camel’s back?

“Nobody thinks it is their job to ascertain at what point the layering of costs which are supposed to protect the public actually has the effect of doing precisely the opposite by reducing advice capacity.”

Hargreaves Lansdown head of pensions research and Pica chairman Tom McPhail said developing a register of annuity brokers would help people to access non-advised shopping around services. He said: “We are looking at the idea of a register of annuity brokers. There are organisations that are already geared up to provide a shopping-around service without offering regulated advice, so that could be part of the answer.

“Nest’s model, where they have a panel of providers designed to ensure everyone can at least achieve a good outcome, is one that could potentially work for the wider market.”

For full details of the House of Lords’ summit, see Retirement Strategy, free with next week’s Money Marketing

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Readers' comments (23)

  • Isn't it a bit late in the day now for people like Baroness Greengross to start worrying about this?

    She should have been more vocal 12 months ago - not that it would have made any difference then as it will now.

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  • Tom's at it again!
    We have a solution to your problem-we can offer you a list of annuity brokers, who can offer you a list of organsations, that can point you in the right direction!
    Qoute-"There are organisations that are already geared up to provide a shopping-around service without offering regulated advice, so that could be part of the answer."
    What does this mean?
    So who is going to help and give advice?
    Who is going to get paid and how?
    Answers to the Baroness-she seems to have a grasp of the idiocy of the system and the lack of advcie from so called expert sources on how to offer 'sound advice' to the customer.
    Come on Tom,do your job properly and suggest a solution,not duck the issue.

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  • So the honourable Baroness thinks RDR will have an impact on access to IFA services on annuities. RDR will impact on the availability of advice for working families in the lower to middle income group, in every area of financial planning and as Earnst & Young put it in the comment about their recent estimates of adviser detriment reducing the numbers from 30,000 to about 20,000 post RDR, the Higher net worth and wealthier clients will still be able to obtain IFA services, but the poor schmuck at the bottom of the working pecking order will not.


    Did anyone believe that the purpose of RDR was to provide better consumer outcomes Absolute rubbish. The purpose of RDR is quite easy to understand, get rid of those pesky troublesome IFAs and put the distribution of financial products into the hands of banks and direct providers, so that if they screw up, we can levy massive fines and boost the coffers, no use having IFAs, they have insufficient capital to pay our fines most of the time and end up bankrupt.

    THe FSA and all those idiotice mal adjusted individuals who dreamed up this mess will no doubt be rewarded with knighthoods.

    It just makes me weep in lamentation when so called "educated" people have no common sense.

    I think that early retirement calls, but we will see how it pans out after 2012, maybe I won't be able to get my SPS before the deadline and they will de-authorise me, then I can go on benefits and live the high life on £25,000 tax free income per year.

    Sounds like a plan.

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  • It's really encouraging to see "Influential Campaigners" so on the ball. Whilst the industry has been shouting this for years, Baroness Greengross is "preparing" to lobby less than 12 months before the major change. It doesn't really inculcate much confidence in their sanity.
    Let's be brutal in the analysis. It is not commercially viable for IFAs to be involved in small pot annuity advice at the present time. I accept that many will do it out of generosity, but the economics are not sound. Post 2012 the economics get worse.
    So lobbying about access to independent advice in such cases is little short of moronic.
    If Baroness Greengross wants to jump on a bandwagon it should be about alternative advice strategies. E.g. companies must have a specific licence to sell annuities (with controls to ensure this is meaningful) and the licence fee money is used to provide an online service, possibly overseen by the Citizens Advice Bureau, that provides a cheap and cheerful service. I doubt that "small-potters" are looking for a Rolls Royce service, just decent value for money.
    At present there are virtually no practical alternatives, which is why so many roll over companies are getting away with robbery.
    But bandwagon jumping and one dimensional thinking are not going to provide any useful solution to the problem.

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  • There will be an 'advice gap' - full stop!

    Someone, at last, seems to understand that whilst it is reasonable that the government tries to ensure that consumers get competent advice and good value for money, it must come at a cost. Unless advisers receive reasonable remuneration then why should they do the studying, pay the levies, and take the associated risk (especially in the blame culture that the FSA, FOS and FSCS) have encouraged) of giving advice.

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  • Regulation, stakeholder,Personal Accounts,NEST, RDR, Turner report, Thorssen,MAS etc.etc. have all caused more consumer detriment and cost without any tangible success. The sooner we all accept that Hector & the F-Pack are right and everyone else is wrong,dishonest and downright deceitful, the quicker we will all be led to the promised land.

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  • Let's face up to it, the IFA will cease to exist within the next 5-7 years. There will be take over after take over which will result in the Banks giving all the advice.

    The writings on the wall for all to see.

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  • Ned Taylor is so right- "the Higher net worth and wealthier clients will still be able to obtain IFA services, but the poor schmuck at the bottom of the working pecking order will not."

    We have been writing to our politicians with the same story over the last 2 yrs to no avail, (useless bunch).

    It is now far to late for these old codgers like the Baroness, to be spouting off. No one gives a Bombay

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  • Another wakey wakey moment !!!

    and we all know that lobbying works dont we just look at the effect on TSC, Hoban and all the other assortment.

    RDR the stuff of farce and nonsense

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  • "Outgoing Aifa director general Stephen Gay says spiralling regulatory and compliance costs will also hit adviser numbers."

    That's the real crux.....

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