The brouhaha over who is allowed to provide the guidance guarantee for people when they retire misses the point. The key question is: what outcome do we want?
Policymakers need to appreciate the low level of understanding in this area. We asked private pension savers near retirement age to rate their own knowledge. Just 28 per cent knew they could take only 25 per cent of their pension tax-free.
Guidance should ensure people have a minimum understanding of the key issues. These include: state pension, including the choices on when/how to take it; the choice of how to use private pension saving and the key facts for each; planning areas to consider, such as income now/later, for family, for care and so on; and facts about buying directly, via brokers or after taking advice.
For guidance to be impartial, it needs to refrain from opinions. Even setting out the pros and cons of each option runs the risk of bias.
I am confident that advice, conforming to a best-practice kite-mark standard, can be delivered commercially to the average person for little more than 50p a week paid throughout their retirement.
It is vital to measure the outcomes so a framework to follow people from guidance to execution, with the results captured, is required.
At Annuity Direct, I invented a “safety net” to check people’s choices against known facts. Where these seem at odds, the person is contacted before the purchase is made. The safety net is triggered in 60 per cent of cases with around 40 per cent of people then changing their decision. Such a system should be used universally.
The results of guidance are more important than who delivers it.
Alan Higham is retirement director at Fidelity