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Do Budget reforms leave Govt open to pension misselling claims?

Labour MP Pat Glass has questioned whether the Government could be on the hook for future misselling claims arising from the Budget pension freedoms.

Speaking at the Taxation of Pensions Bill public committee hearings yesterday, Glass said consumers who had not been properly directed to financial advice could seek redress from the Treasury if they purchase inappropriate products.

The MP for North East Durham said there was no redress option for non-advised sales, so the Government could leave itself open to claims for inappropriate product choices.

She called for the Treasury to introduce a “second line of defence” to better protect consumers from making poor choices.

Glass said: “Do you intended to introduce compensation for those who have taken unsuitable products, particularly for those who have not been told by the product seller that they need to seek independent financial advice?”

Treasury financial secretary David Gauke said: “It is not possible to give a simple answer as it depends on the nature of the relationship between provider and consumer.

“What is important for the Government is to ensure easy access to the guidance guarantee, that consumers are made aware of the consequences of decisions through guidance or through regulated firms complying with regulatory obligations, and that consumers go into any arrangement with their eyes open.”

Asked whether the reforms leave the Government open to future compensation claims, Gauke said: “What we are determined to do is give consumers every opportunity to access guidance and clear information to be aware of when it is in their interests to seek financial advice. We believe that is the correct approach to ensuring consumers are protected and taxpayers in future are protected.”

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There are 3 comments at the moment, we would love to hear your opinion too.

  1. The committee appeared to be fixated on the level of “compensation” that should be payable to people who make poor decisions without advice/guidance. Certain members also appeared to be unclear on the distinction between advice and guidance, and the fact that regulated advice will need to be paid for.

    The point about sellers not signposting customers to financial advice is not valid now, never mind post April with the guidance guarantee in place. As standard, non-advised processes will include disclaimers that the service is not advice and that the customer should seek advice if they are unsure.

    As the FCA pointed out in the hearing, people who do not take advice when they were aware of the option, and then choose to make their own decisions will not have potential recourse for mis-selling (unless there were flaws in the information provided).

    The fallout from Pension Freedom hasn’t even happened yet, and already the powers that be and media are trying to apportion “blame” for bad decision-making. What they need to understand is that freedom and responsibility go hand in hand, and accept that if you give people the scope to shape their own retirement income you are also giving them the scope to make a mess of it.

  2. Odds on a ban on non-advised drawdown suddenly making its way into the documents following the Autumn Statement?

  3. The misselling problem to my mind is to do with all those people who were advised annuities when they could have had drawdown. They have now lost all their money in return for probably a diminishing income in relation to inflation. Pension freedoms have also released new value for the State pension deferral scheme. With a guaranteed growth rate of 10.4% pa on the annual income together with deferred inflation increases, or inflation increases and 2.0% pa if taken as a lump sum, it makes sense to draw more from a drawdown plan covering the lost income of a deferred state pension in the knowledge that this amount has a guaranteed growth rate in the state scheme. This is very useful if a spouse has a low state pension and little or no OP or private pension.

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