I have been harping on that the pension reforms and guidance guarantee are being pushed through too quickly, which will be at the detriment of the consumer. I do believe that the ideas and eventual outcome of these reforms will be of real benefit to most people.
The current issues come from all the historic messing about with pension legislation and it is these past changes that are going to be the most complex part to deal with in the interim.
If no one changes anything in the next 40 years or so everyone should be on the same level playing field and guidance may actually be able to deal with real life cases. But I will not be holding my breath on that. I do not even expect it all to be the same come this time next year, particularly if we have a major change in government in May.
Wise or unwise?
The launch of the Pension Wise website has caused a flurry of discussion – firstly about the misleading inheritance tax information and also about the six steps giving an overview of the guidance process.
For the layperson, those six steps make sense: you see how much you have and what you want going forward, then choose a retirement option. For the rest of us that have worked in pensions for some years, we are well aware it is not as simple as how much money you have in your pension fund. It is more about what the schemes you have actually offer you in terms of benefits.
Those retiring now may have benefited in the past from such things as enhanced accrual of tax-free cash, guaranteed annuity rates, as well as the protections options available in the scheme at A-day. If you just look at the value of the fund, this will all be missed.
The website does push people towards guidance and advice but the fact it all has to be over-simplified will lead to people believing it is all as simple as it looks and they are fully capable of making the most appropriate choices without any advice or even guidance.
On the defensive?
If you need a second line of defence you have already decided the first line is not going to work, which is not really a good starting point. While writing this, details of the second line of defence have only been issued in a press release and a letter for providers. It states that we as providers have to ask questions and, based on the responses we receive, give the relevant risk warnings to the consumer.
It is less than two months until the reforms come into force and we are yet to see the detail of what these questions will comprise of. I fear that by the time someone asks to take their benefits and has chosen not to use the guidance service or take regulated financial advice, then how willing are they going to be to listen to their provider, or even answer their questions honestly in the first place? The apathy on these types of questionnaires tends to go down the route of “no must be the right answer to get my benefits”. I am just as guilty for not wanting to disclose things I feel are irrelevant and may be preventing me getting what I want quickly.
Education is key
Providers are lucky in a way. We will have all the options available in April for those that want to access their fund or change their death benefit nominations, so the issues of transfers and advice regarding them is limited. However, even though the majority of our clients have come to us with an adviser, some have become orphaned over the years and we need to make sure we are protecting them as best we can.
The second line of defence, although flawed in my opinion, does give us another chance to engage with clients so they have had access to information that flags up issues such as the levels of tax they will pay and other implications of their actions. This contact needs to be written in plain English to ensure it is easily digestible and acted on if needs be. We choose to work with advisers in the first instance and will push clients to speak with them at every opportunity, and I believe other providers will be doing the same. We need to assume responsibility, taking the requirements from the FCA and Government a step further to deal with the issues specific to our clients.
Claire Trott is head of technical support at Talbot and Muir