Chancellor George Osborne’s guidance guarantee could cost up to £13m a year, according to estimates from the Association of British Insurers.
The trade body says Government bodies such as The Money Advice Service and The Pensions Advisers Service should provide the guidance when it launches in April 2015, with a provider role possible in future.
Its “medium uptake” scenario for 2015 would see 200,000 people using the guidance service, costing £7.2m. It is based on an average cost per client of £36.
If 375,000 people take up guidance, the bill is estimated at £12.8m.
The “lower uptake” scenario, based on just 25,000 seeking guidance, would cost around £1.5m.
The ABI assumes 10 per cent of users will want face-to-face guidance and factors in the cost of hiring staff with pensions experience on a salary of around £45,000 to provide 30-minute sessions.
The trade body’s cost estimates assume the remaining 90 per cent will access guidance via the phone. But if more go online, the costs reduce significantly. For example, the £13m higher uptake scenario reduces to £9.5m if 30 per cent take guidance via the web.
However, costs could balloon to £25m if delivery times double.
Osborne has committed to support the guidance guarantee with £20m in Government funding.
Nest has called for any further costs to be covered by a levy across the industry. It says billing schemes could increase costs for small pots.
The ABI also wants a levy to be charged across asset managers and banks and says costs would go up if a provider role were included after 2015.
The Government last week closed its consultation on the radical Budget pension reforms announced in March.
Adviser groups say providers would be unable to offer impartial guidance but the ABI argues a provider role should be considered in future.
The ABI says: “To meet the extremely ambitious timetable, we believe the guidance guarantee must make use of the existing guidance infrastructure
“As the scope of the guidance guarantee is established and the content and standards become clear, the Government and the FCA should continue to review the role of providers and utilities.”
Clear IFA director Howard Bullock says: “There is very little time to deliver this so the consultation and testing will be limited.
“There will need to be something delivered in 2015 but I expect that will need to be evolved over the next few years.”
Guidance guarantee in numbers
The annual cost to the industry in the ABI’s “high uptake” scenario
The number of people who would seek guidance in the ABI’s high-uptake scenario
The ABI’s estimate of the average cost per client of providing guidance
The number of minutes each guidance session is expected to last
Source: The Association of British Insurers