The Chancellor gave us his impression of old-fashioned magic when he pulled the pension changes out of his hat in the Budget.
The industry was somewhat taken by surprise by his utopian vision of the future – all pension savers will be free to cash in their pension pots when they reach 55 and will use it wisely to provide for themselves and their families.
What’s more, he announced that pension savers will have the right to get free impartial face-to-face advice on their options.
Turning the dream into a reality is likely to prove more challenging. Pensions Minister Steve Webb has already admitted that the advice – which post-Budget Day has morphed into guidance – will be fairly rudimentary and will include literature and websites.
Who will deliver the advice is the first question. Mr Webb has said he is talking to the Pensions Advice Service, the Money Advice Service and the Citizens’ Advice Bureau. Perhaps even more critically, there are already questions being asked about who exactly is going to pay for the advice, with one MP suggesting that there may be a need for an industry levy.
The Government is going to make £20m available but it is, apparently, just there to get the system set up – Webb describes it as “seed-corn money to get the thing going”. It’s certainly not going to provide advice for everyone retiring in the coming years.
Here in the advice sector, it seems that George Osborne is in danger of delivering the very opposite of his vision. Unregulated advisers giving guidance on pension income choices that will have irrevocable implications for the retiree – paid for by us. It’s a vision of hell, not heaven.
The spectre of misselling is also hovering above us. Will whoever delivers the guidance become liable for the choices made by the retiree?
If they have any sense, their advice will simply be to consult a “proper” financial adviser who will go through the whole factfind/research/suitability/risk assessment process before making any kind of recommendation.
Webb has told the Select Committee that the guidance will lead people to take more “formal” advice but warns that the cost of an IFA might be prohibitive for smaller pension pots.
Others have suggested that maybe the guidance can be delivered via a voucher system that can be redeemed with a choice of advice sources – consumer advice groups, IFAs and maybe even providers.
This may indeed provide the best possible option for the consumer and should certainly be considered but it is paramount that whatever is offered guarantees the impartiality of the guidance.
The whole advice versus guidance question has clearly not yet been properly thought through and it seems likely that the consumer will end up with something that is a pale imitation of advice – unless they pay for more.
What the advice sector must resist (and providers may do too) is to be faced with the bill for something that is actually detrimental to the consumer.
Carl Lamb is managing director of Almary Green