We are nearing the end of the Treasury consultation on the Budget proposals for changes to the pensions income rules and the key aspects for advisers are becoming clearer.
First, it is important that the Financial Conduct Authority continues with its competition study of the post-retirement income market and keeps it under review. The proposed changes make this job much harder as it is difficult to extrapolate to a future that does not look like the past. For this reason, there will be more guesswork required than in analysing a stable market and it is quite likely that some assumptions will be wrong.
The statistic that needs to change is that 80 per cent of retirees with a defined-contribution pension pot have, in the past, just accepted the offering of the incumbent pension provider.
The Treasury’s proposals will make the options for retirees more complicated but will not alter the market structures by which they access their pension.
Second, from an adviser perspective, where and how retirees are directed after their guidance is the key issue.
There is an opportunity for advisers to acquire new clients. Greater flexibility in what people can do with their pots means more may need ongoing support in managing their investments through retirement.
There is a challenge for advisers to meet the needs of these potential new clients as not all will be what advisers might have experienced previously.
I believe a new directory will be needed of those advisers who are willing and able to play a role in this new market.
They will need to commit to taking those who are referred although advisers should be able to set out the type of service and indicative prices to ensure that referrals are appropriate for their business model.
We have been in discussion with The Pensions Advisory Service and the Money Advice Service about how such a system should work and at what juncture the handoff to advice will be appropriate.
The additional choice means that more people will need support and advice and over time the average pot size will increase, meaning more people will find advice financially viable.
This is a great opportunity for the advice profession and I hope there will be a strong response from financial advisers when the moment arrives.
Chris Hannant is director general of the Association of Professional Financial Advisers