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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.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. No matter what is agreed, or how much is done, many consumers who ignore the proper advice, and driven by a compensation culture, being promoted by Claims Management Companies, will eventually complain to the FOS and say ” I am a simple man, I didn’t know what I was signing, and I spent all my retirement cash, and now I want it back”.

  2. the providers want to allow clients to access GARSswithout advice as the GARs are a massive liability on their books… turkeys voting for xmas

  3. “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.”

    Well, it will remove the need for a lot of them to get it in the first place. Making it that simple is a poor outcome for those with low value funds containing high value guarantees.

    Providers should provide the transfer value, printed next to the actuarial cost of providing the guaranteed annuity rate, at the normal retirement age. Furthermore, if this age is 75 and is the ‘default’ age used in the contract, then if there is a schedule of GARs that can be applied at a number of different ages, the member should be made aware of the value of the one that they specify. The same applies where the basis of the GAR is not a ‘take it or leave it’ offer ie it can be blended with current rates to provide options for the member that give better than market rates for the income style they want.

    This seems to me nothing more than a blatant attempt to reduce high cost liabilities at the expense of people who don’t have the wherewithal (or a genuine opportunity for proper advice) to understand the value of what they are losing.

    It is shameful.

  4. If HM Government fall into line with the apparent desire of the life insurance companies to simplify the calculation by legislating for them to use the transfer value (i.e. ignoring the GAR which is costly for them), it will be shameful.

    It seems simple to me – if the Guaranteed Annuity Rate is 3 times the current market rate, the current value of the GAR policy is 3 times the value of the pension pot as that is what it would take to achieve the same annuity at current market rates. HM Government should set up a working party of actuaries to agree how to work this equation and invent other necessary equations for other guarantees such as Guaranteed Investment Returns.

    There is a need for publicity around how wrong this is. Will Money Marketing take up the cause?

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