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ABI: Consumers will pay for ‘free’ guidance service

Association of British Insurers director general Otto Thoresen says the new “free” pensions guidance regime will ultimately be paid for by consumers. 

In the Budget last month, the Chancellor said all defined contribution members over 55 would be offered free, impartial, face-to face advice from next April. This was later clarified as guidance, not advice. The guidance coincides with reforms that will allow savers to take their entire pension pot as cash, also from next April.

Speaking at a Treasury select committee hearing on the Budget today, Thoresen said the PriceWaterhouseCooper estimate that the guidance scheme would cost £120m a year, which would work out at £240 per head for 500,000 retirees, was “not unreasonable”.

Thoresen said: “It will be free in that customers do not need to write a cheque upfront but it will have to be paid for and in the end it will be paid for by the customer.”

He does not believe the scheme needs to be face to face but agreed with pensions minister Steve Webb that it should be an option.

Thoreson said: “I don’t think it would be sensible for it to be face to face for everyone. For some people this service is acceptable to be delivered over the phone or using technology to ensure people know enough.

“For some people it will have to be face to face. My approach would be that we have a system you go through and if at the end you still want to talk to somebody then there is that option.”

ABI members are divided over how guidance is offered with some firms insisting the service is delivered by a third party to avoid provider bias.

Thoresen said it is possible the industry could deliver the system but it has to pass the “public opinion” test on impartiality.

He said: “The impartiality test is absolutely crucial. Whichever way we do it, it has to be demonstrably impartial, which will be a challenging test but let’s see how we can do it. I am very alive that this is something that has to pass the test of public opinion.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. So “customers” are now paying for “guidance”

    Will this then apply to the guidance Fidelity and HL give?

    Will it be regulated?

  2. It’s ok because George Osborne was only using the word “free” so that most people understood his speech. The fact it is not actually “free” and will be paid for in some way is just a technicality.

    I shall be providing free advice to clients from April 2015 and the regulator can’t do anything about it because George Osborne said i could.

  3. We have a guy down our pub who gives free advice, he is called Bullsh*t Barry.

  4. £240 a head for ‘guidance’ (with some face to face required)?

    Tell you what, you give me the toolbox you want to use, send me on a course to cover what you want said and I will do this and add an ‘advice’ service (telephone only) for only £200 a head for up to 5 people a day.

    Lovely!

  5. goodness gracious 8th April 2014 at 5:35 pm

    I do not understand where he gets the 500,000 figure from. Just how many of the population is 65 each year. Deduct those who have no pension or a DB pension and how many are left? Then deduct those who can’t be bothered and those who will just take the money without guidance, then how many are left. I estimate that 100 trained guides, earning 40-50k per annum plus travel will work, allowing 22,500 free appointment days per annum. and yes, the cost is about £240 per head, but the total cost is £5.4 million. Add admin costs etc and the total is still below £10 million per annum.
    Or have I made a fundamental error in my calculations?

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