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Ian McKenna: Would guidance be better as a short-term fix?

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The adviser market is understandably unhappy about having to make a large contribution to funding for the guidance guarantee process, which they consider will bring little benefit to their firms. 

Such concerns are exacerbated by the suggestion the Money Advice Service may be one of the delivery partners, given its consistently profligate spending record.

I agree entirely with these concerns but there is a more fundamental question – should the guidance guarantee, as proposed, be a long-term solution or temporary fix? Isn’t the real need for in-depth financial education for consumers about retirement?

Many organisations are taking a two-stage approach in preparation for the pensions revolution. 

There is a need for urgent action to have strategies in place when the new rules take effect next year but the time available is not sufficient to develop optimal solutions. There will probably be a short-term boost in business next year and companies will not want to miss out. 

Subsequently, however, the market will evolve as we learn how consumers react to their new-found pension freedom.

A prudent approach is to create a tactical service to meet immediate needs in 2015 while simultaneously instigating a longer-term activity to put in place more robust and scalable solutions over the next two to three years.

No one knows exactly how the situation will evolve so rather than try to put in place a long-term mechanism to help consumers before the changes have taken place, would it not be better to design the guidance guarantee itself as simply a short-term solution?

A huge amount of time and money is about to be spent because the Chancellor did not fully think through the implication of the guidance guarantee. 

While I understand such action being taken in the short term, do we need a new set of institutionalised processes for which the industry will be expected to write a blank cheque?

The MAS in particular has repeatedly shown itself incapable of exercising reasonable financial control or accountability. 

Why not make the MAS role temporary, with only a provisional role until it can be proved fit for purpose?

As proposed, the extent of support the guarantee will provide is the equivalent of putting a sticking plaster over a gaping knife wound. What is needed is not a one-off session either over the phone, face-to-face or online but an extended programme of consumer financial education. 

If this cannot be delivered in the short term, there should at least be a parallel plan to identify how to achieve a suitable level of consumer knowledge as soon as practical.

The guidance guarantee should exist for a maximum of, say, three years while the market is in transition. This would give the Government, the Treasury and the industry the opportunity to understand how consumers in fact behave when presented with the new flexible arrangements.

Digital communications are radically changing the way people live their lives. 

A small percentage of the population have no access to or do not use technology but how many of them are in this position because they either cannot afford it or have already retired?

With most of the working population regularly using online services, digital communication provides a mechanism which can support such long-term knowledge sharing.

A suitable infrastructure may exist already. The Open University is a global leader in running massive open online conferences, or MOOCs, and it has been building the True Potential Centre for the Public Understanding of Finance. 

Although funded by True Potential, this is an entirely independent service. More than 15,000 users registered for the first eight-week course, Managing My Money, of which over half continue to engage on a regular basis. 

Do not such services represent a far better alternative than the proposed guidance guarantee?

Ian McKenna is managing director of Finance & Technology Research Centre 

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Although fine in theory, there still is a sizeable minority who don’t have on line access. And that’s going to be a bigger percentage in the less well off sections of the population, who of course would benefit the most from this type of information.

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