Govt to tackle GARs advice confusion


The Government could scrap the requirement to put a value on guaranteed annuity rates when deciding whether savers need to take regulated advice.

A Department for Work and Pensions consultation, published today, sets out a proposal that would see the advice threshold based solely on the size of pots, not the value of guarantees.

In June the ABI called for the Government to water down new pension transfer rules as providers came under fire for blocking savers’ access to the freedoms.

As part of the pension reforms, savers are required to take regulated advice when transferring out of policies with safeguarded benefits, mainly defined benefit plans and GARs, worth more than £30,000.

But providers and experts have warned there is not enough clarity over how to value guarantees.

Now the DWP will consult on how to simply the valuation process. The only option it details is basing the £30,000 threshold purely on the value of the pot.

It says: “One option would be to provide for the value of the benefits to be treated for this purpose as equal to the transfer payment that would be available if the member decided to transfer.”

It is also considering replacing the advice requirement on GARs with a statutory risk warning.

It says: “The Government recognises there are various different types of GAR arrangements, and potential other types of arrangements (other than traditional defined benefit arrangements) where there is a form of guarantee in relation to the rate of pension income that may be provided.

“We are therefore seeking views on whether this variety can be reflected in a series of risk warnings tailored for different GAR schemes, and on whether any such risk warnings should be prescribed by legislation, or could instead be part of a voluntary approach led by regulators and trade bodies working together.”

Talbot and Muir head of technical support Claire Trott warns: “Risk warnings are not taken seriously enough. How many people actually read them? Unless you have the value of the guarantee up against the value of the pot people won’t appreciate what they are worth.”

AJ Bell head of technical resources Gareth James adds the proposals do not address the lack of advisers willing to work on this area.

He says: “Making the valuation process simpler and easier to understand seems sensible.

“However, if the threshold remains at £30k I’m not sure how much of a practical difference the proposals will make in helping individuals to obtain advice.  Our research shows that half of advisers struggle to advise on pension freedoms for clients with pots of less than £50k.

“The changes will make the valuation side of the process easier for providers, advisers and individuals but access to advice is likely to remain a problem.”

The consultation closes on 11 January 2016.