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Insurers at war over Osborne’s pensions guidance plans

Pension providers are at war over how to deliver Chancellor George Osborne’s at-retirement “guidance guarantee”, with at least two ABI members raising the possibility of quitting the trade body over the issue.

During his Budget speech Osborne pledged that everyone in defined contribution pension schemes would be offered “free, impartial, face-to-face advice” on their retirement options.

A consultation document published alongside the Budget confirmed the service will provide guidance, not advice.

The commitment is designed to support radical liberalisations that mean anyone aged 55 or over will be able to take their entire pension pot as cash from April next year.

However, the provider community is divided over the role insurers should play in offering guidance to savers.

Money Marketing has spoken to two major insurers who have raised the possibility of leaving the Association of British Insurers if it does not insist on the guidance being offered independently of members.

A director from one of the rebel insurers, who asked not to be named, says “over 40 per cent” of the ABI’s membership believe providers should not control at-retirement guidance.

He says: “History shows the industry has always found a way of gaming whatever is put in place to protect their shareholders’ interests.

“Even after the ABI code was put in place, 8 out of 10 people were still not getting good outcomes. So why take the risk and not separate the guidance?

“This is a chance for the industry to show we genuinely want to make this work and rebuild trust with the public.”

However, another senior insurance executive says it would be “bizarre” if providers were forced to hand over responsibility for offering guidance to a third party.

He says: “Providers who already have customers will increasingly provide guidance in the run-up to retirement, so it would be bizarre if those providers were banned from giving guidance at the point of retirement.

“So we think it is very important that providers have the right and the option to offer in-house guidance.”

Partnership director of corporate affairs Jim Boyd says: “Provider-led guidance would be inappropriate and not good for the provider community.

“It is important not only that this guidance is impartial but that it is seen to be impartial. We are looking forward to working closely with the ABI to help shape proposals to ensure the best possible consumer outcomes.”

Worldwide Financial Planning IFA Nick McBreen says: “This is a real hornets nest. You can understand why the providers want to offer this guidance because they will say they have looked after the customer for years and built up their funds.

“But ultimately there will be pressure for this to be seen to be independent of the insurance industry.”

An ABI spokesman says: “The Budget introduced important reforms for savers and it is crucial to get them right. It is right for people to be offered a range of options to generate retirement income, and it is very important to ensure that customers have the information they need to make the right choice for their circumstances. The availability of impartial guidance will be key.  

“Pension providers already help customers understand and prepare for retirement, and it will be important to define their role in the guidance guarantee. The ABI are looking forward to engaging fully with the Freedom and Choice in Pensions consultation well ahead of the June deadline.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Jonathan Kirby 7th April 2014 at 9:22 am

    IFAs & WOM Restricted are ideally placed to offer this service.

    Firstly although 30% down over last few years, there are still around 21,000 scattered around the country so convenient to all.

    Secondly, software such as O&M’s Pension Profiler Professional can quickly and easily generate an options report showing all the main options available, so it need be neither too time consuming nor onerous from a compliance point of view to give guidance.

    If that guidance leads on to full advice then it would need to be priced accordingly but I see the opportunity for the adviser community to add real value here.

  2. @Jonathan

    I agree with you in principle but the reality is that the regulator does not allow us to offer different options. A firm either provides regulated financial advice or not. I would love to be able to see clients on a guidance basis for a lower cost but i don’t believe that the regulator will allow me to. The first time that a client complains i would be hung out to dry by the FoS. Ironically a firm that only provides guidance and never advice would be fine. I think it would be very difficult to be a firm that can initially provide guidance with the option of advice on a face to face basis.

    I know that this exists elsewhere within the same firms but i think that most of those firms would have very clear lines between guidance and advice such as the guidance is only provided from a distance eg online where the advice is face to face. A model that would be difficult for a small IFA practice to employ.

    All the above is my humble opinion only, feel free to disagree.

  3. This proposed new flexibility is essentially an extension of Flexible Drawdown with as-yet unknown qualifying conditions (i.e. what needs to be satisfied to constitute satisfactory guidance?) Surely if it is considered pre-requisite to have at least £12,000pa of secure income for Flexible Drawdown now, then it would be inconsistent to consider it ok to allow full flexibility to someone with less than this level of secure income next year? So this free face-to-face advice would need to be a minimum of evidencing a client’s other means of secure income in retirement and assessing this against what he been determined necessary to permit full flexibility (a minimum income requirement). Otherwise, how does the existing principle of flexible drawdown stack up? Surely it need not be any more complicated than this combined with a model of how other options should be presented to encourage retirees to seek full financial advice?

  4. The difference between guidance and advice is a dangerously woolly area from which many intermediaries will wisely shy away. Those who want guidance can go to the MAS. Those who want advice and who have the means to pay for it, either from their own pocket or (initially) with a £100 government voucher, can come to people like me. It really doesn’t need to be any more complicated than that.

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