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Insurers split as Treasury eyes provider role in pensions guidance

The Treasury is set to hand providers a significant role in delivering Chancellor George Osborne’s Budget “guidance guarantee” despite widespread concerns that insurers will not meet the Government’s impartiality test.

The Chancellor has promised that everyone will receive “free, impartial, face-to-face guidance” when they reach retirement from April next year. 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.

However, the question of how the guidance should be delivered has divided the industry. In March, Money Marketing revealed two major providers had raised the possibility of quitting the Association of British Insurers if it did not insist the guidance is offered independent of members and the issue appears to be causing a huge split within the trade body. 

Money Marketing understands Government officials have held talks with senior industry representatives in recent weeks during which it was made clear that the Treasury favours providers offering guidance to savers.

‘Delivery risk’

One senior industry source says the Treasury is looking for a “pragmatic” solution that can be implemented in less than 12 months time.

“The Treasury are terrified that millions of people are going to ring within months of the guidance launching,” the source says.

“They see a systemic delivery risk that if we have a single utility to deliver the guidance and demand is strong it will fall over. Therefore they want to lean on the providers to make sure it works.”

Another source adds: “The Treasury wants providers involved. Their priority is delivering a system that is sufficiently robust by April 2015.

“Ultimately the Treasury feels it needs to get something in place so it can say Osborne has stuck to his Budget pledge.”

A Treasury spokeswoman insists “no decisions have been taken” on the delivery of the guidance pledge.

She adds: “We’re committed to impartial and consistently high quality guidance and are currently consulting on the delivery model that will best achieve this. We will publish our response in due course.”

Conflict of interest

The argument over allowing providers to offer guidance to savers centres on the issue of impartiality – how can insurers offer impartial guidance when their primary function is to sell products?

The Association of British Insurers has commissioned KPMG to devise several possible solutions to the guidance problem. This work will be submitted to the FCA, which has been handed responsibility for creating the guidance guarantee framework.

ABI director general Otto Thoresen suggests a process could be designed to manage insurers’ partiality if they were to provide retirement guidance to savers.

“The reality is every industry player would admit they are partial,” he says. “In fact, you shouldn’t be working for a company unless you are partial because you should believe in your company and want to give customers more of what you have.

“But there is a discussion about whether a process can be designed where that conflict can be managed.”

Thoresen warns preventing providers from being involved in the guidance process could result in people not taking up the offer.

He says: “There is a point of view that if you have an intervention in the customer service process, the risk that creates is that the customer isn’t motivated to go and have the guidance session.

“The question is how are you going to make sure that people take up the guidance offer and how can you make sure they take action off the back of it?

“But until we get more clarity on the definition of what guidance is I don’t think we as an industry will reach a conclusion on these big questions.”

Just Retirement group external affairs and customer insight director Stephen Lowe says it is “impossible” for providers to offer impartial retirement guidance.

He says: “Product providers want and need to sell products.  It’s impossible for them to meet the impartiality test, in reality or in how this would be perceived in the court of public opinion.

“Providers who feel confident that they have treated their customers fairly should have nothing to fear from an external and impartial guidance service.”

Friends LifeLV=MGM AdvantagePartnership and Royal London have also publicly called for the guidance to be delivered by an independent third party.

A number of other insurers have privately been calling for providers to be involved in offering the guidance but few have made their feelings public. Following the Budget, Prudential warned that “dismissing out of hand the potential benefits of including product providers as part of the eventual solution seems in our view to be short-sighted at best.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “I do not think providers have the skill set within their own staff to run a service like this.

“This is about the Treasury wanting something to succeed because there is an election next year. It is nothing to do with the quality of the service provided.”

Vested interests

If the Treasury does propose handing providers a role in delivering guidance it is likely to be challenged by MPs. 

Conservative MP Richard Graham, tipped by many as a future Tory pensions minister, says: “We promised guidance and we need it. But I do not think it will best come from providers; that is not what we are looking for.”

He adds that while IFAs have a role in retirement planning it was important that whoever provides the guidance does not have a vested interest. He says instead Government services like The Pensions Advisory Service or the Money Advice Service should be “beefed up” to provide the service.

Labour MP for Erith and Thames-mead Teresa Pearce sits on the work and pension and Treasury select committees.

She says: “Once you’re in a situation where someone who has a product to sell you is also involved in providing guidance I’d be very wary.

“Without being rude to providers, the annuity market is what they provided before and it didn’t work. If it turns out providers are directly involved in this I will push for the Treasury committee to look into it. We’d be very lax in our duty if we didn’t keep an eye on anything new that could effect ordinary working people’s financial stability.” 

“It would be better to put money together as they do now into the MAS which could be beefed up into something that worked well, though I’d rather it went to the Citzens Advice Bureau. They are trusted and have nothing to gain advising people one way or another.”

Labour also wants providers to be barred from offering guidance to members.

Shadow pensions minister Gregg McClymont says: “The Government has consistently failed to set out exactly what support people will receive in the form of guidance. If this guidance is to be truly independent, it cannot be offered by powerful providers to their existing customers.”

Regulatory responsibility

Partnership chief risk officer Kathryn Purves warns if insurers are given responsibility for providing guidance they will also take on additional regulatory risk if something goes wrong.

She says: “If providers get involved in delivering guidance that brings with it a level of regulatory and reputational risk.

“Whilst the guidance isn’t going to be regulated, providers are regulated entities and if consumer outcomes from that guidance are not appropriate the FCA will have to consider how it deals with that.”

Hargreaves Lansdown head of pensions research Tom McPhail expects the guidance guarantee to be delivered by a range of different industry stakeholders, including providers and advisers.

He says: “Everybody in the industry, including occupational sch-emes, providers and IFAs, is going to have a role in making the guidance guarantee work. It is going to be a quick and dirty solution and it is going to be quite superficial.

“Schemes and life companies will have to provide it for their existing customers, but they will also be able to go elsewhere to get the guidance. It will be up to the FCA to set the overall framework but then it should be up to the marketplace to innovate solutions for how to deliver it.”

What politicians are saying on guidance

Pensions minister Steve Webb:  


In April, Steve Webb was reported as saying that “instinctively” he would be “nervous” about providers giving the guidance. Later that month he told the work and pensions select committee it is important to “harness the expertise” of the advice community and industry to meet the challenge of providing guidance. He added: “There is already MAS and TPAS so there is infrastructure. We do not want people pressure sold by their providers.”

Work and pensions select committee chair Anne Begg:


“TPAS is keen to do this role and they could scale up but the question would then be who would pay for it and I suspect Government would say it should be industry. I’d be concerned if guidance was given by companies which will benefit from the selling of the end product because it is much harder to guarantee it is independent. I’d much rather it was an independent body that doesn’t have commercial interests.” 

Work and Pensions select committee member Mike Thornton:


“I raised the idea with Steve Webb recently for a levy to fund people to go to an IFA at retirement because they do not have a prejudice towards any provider and they will know more than a civil servant. But I do not think it will happen. If providers are involved they must be at arms length, perhaps by funding a body which can provide it. It’s like the old saying ‘justice must not only be done but be seen to be done’. There must be no doubt that no one will be pushed towards a particular provider.” 


Adviser views

Petra Griffiths, director, PSG Financial Solutions


Providers cannot offer impartial guidance and should not be allowed anywhere near it. It is a real problem for advisers to get information out of providers at the moment so it would be a nightmare if they were given responsibility for something as important as this.

Phillip Bray, marketing manager, Investment Sense


Guidance categorically needs to be independent of product providers. How can a provider not have a vested interest in pushing their own products? If it is not completely free of provider influence then it will not be impartial. 



Expert view

The guidance guarantee is going to be very superficial, so the member will be given information about tax rates and choices but there won’t be a lot of questions and they certainly won’t be told what to do.

The two critical elements of guidance are the pre-retirement communications designed by the DWP and the FCA, which need to be comp-letely rewritten, and the handoff points within the guidance process.

Some of this is easy. For example, if you have got debts you probably need to talk to the Money Advice Service and if you are going to buy an annuity you should be shopping around the whole of the market.

But where this is going to get really interesting is with the life companies. I expect the lifecos to look to roll over their existing customers into drawdown rather than annuities. We are talking about a completely different population of people potentially going into drawdown and there are significant risks involved in that.

The regulator will need to focus on holding providers to account if a customer loses out because they drain their fund too quickly or their investments don’t work out as they had hoped. Some providers have been pushing for some kind of regulatory exemption but that simply won’t wash.

Tom McPhail is head of pensions research at Hargreaves Lansdown


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

  1. This is an ill thought out policy that only confuses the consumer as using words like guidance is often confused with advice. In my humble opinion Osborne’s pledge also breaks current legislation and I hope that a trade organisation tests this in a court of law as any face-to-face guidance would be deemed to be advice under FSMA 2000 and 2012 and indeed FCA rules.

    It is also clear that if providers were allowed to give so-called guidance advice creating a lower standard than regulatory advice then they would effectively just herd millions of customers into potentially inappropriate products rubberstamped by government. The question should be who pays for the compensation if this guidance advice is incorrect?

    You only have to look at the past performance of providers when they have run their own sales forces in the past to realise that this is extremely bad idea. Provided based advice should be clearly marked as salesperson not advisers.

    Finally, we have all gone through the pain of RDR and now that advisers are separated from providers and inducements are banned and vested interests monitored surely it is time to invest in the adviser community rather than trying to create rules that support politicians vested interests!

    While on the subject of vested interests and inducements could MM request information on luncheons and other incentives to top Treasury officials, FCA management and indeed some MPs to see what inducements vested interests they hold with providers? After all I wonder how many expensive lunches or other soft inducements they receive as an IFA is now banned from receiving cricket match tickets or golfing days.

  2. Guidance per se need not be superficial. Drawing comparisons to the way the NHS ‘contracts’, it seems to me that free face-to-face guidance can be provided: Government provide £20m to build infrastructure, ongoing costs met by pension provider levy. Guidance delivered by (say, a) national IFA with a (genuinely) national presence selected by review of tenders invited, which must include a minimum consultation expectation and formalised guidance process. Successful tender is selected by a ‘panel’ comprising the parties subject to the levy so that all views can be considered as part of the process but the ‘guidance’ subsequently provided to retirees is entirely impartial.

    This initial structure can be altered as the process evolves, for example, it might include an annual charge to the ‘levy panel’ by the guidance provider such that an annual review and appraisal of the pension strategy is provided, again subject to agreed service level agreements and defined standards. It may be that a percentage of (either) charge can be met by HM Government, in the same way as NHS dental patients are funded for example? It is rather unfair of the Pensions Minister to expect pension providers to meet the costs of the guidance promise (made by his office) with no certainty of market share or participation and to remain steadfastly independent at the same time. Yes, there is a ‘greater good’ aspect, but, our providers are (in the main) commercial entities with shareholders to answer to and investors (including policyholders) to protect and it would defeat the objective somewhat if providers resigned from the ABI, for example, in protest at the early proposals.

    A national IFA arrangement as briefly set out must surely represent a more effective and reliable provider than the alternatives mentioned in dispatches so far like the Money Advice Service (who claim after all to offer ‘free advice’ already?) or Citizens Advice Bureau? Perhaps the local Library (those that remain!)? My two primary concerns are that if the industry collectively does not approach the issue cohesively, the touted guidance will end up being provided by an organisation or delegate agency that is not equipped by knowledge, skill, expertise, experience, competency or qualification to provide it, and that ultimately the detrimental impact on the wider UK economy, particularly the drain on the State (it wont simply stop at income in retirment) will manifest in only a few years.

    There are many considerations, this is just about meeting the cost of the guidance, however quite clearly consideration will need to be given to responsibility for guidance provided, provision of PII, the current (FCA) regulatory framework, in particular the provision of regulated advice to retail clients, the approved persons regime, financial reporting and capital requirements, and European directives etc etc.

    So, not much too think about, £20M should cover it!!

  3. Otto Thoresen is a very intelligent chap who, I am sure, could indeed design a process which could ‘manage insurers’ partiality’. But actually, the ABI seems singularly to have failed to achieve this over the OMO so why should we expect that it will achieve it with pension guidance?
    Insurers/providers are there to build products which clients, with or without advice/guidance, can use to meet their needs. It is clearly in the best interests of the insurers/providers that people invest in their products. In such an environment it is incredible that anyone could imagine that the end consumer, or the consumer groups, would believe that their guidance was impartial – even if it was.

  4. The government want providers to give the guidance because the providers can foot the bill via a levy. If the guidance was to be given by MAS/CAB/IFA’s they would have to foot the bill themselves as the providers would certainly refuse to do so – why would they pay for something that had no direct benefit to them?

    If IFAs were to be given the role of providing advice/guidance then I suspect they would have to pay for the cost of doing so which would be in the region of £250 million a year, I don’t think that would be a welcome annual levy. For MAS and CAB the government would have to foot the bill.

    Providers (sadly) are the only reasonable method of making this poorly thought out Osborne policy work – They will cover the cost but they cannot be impartial.

  5. Douglas RG Baillie 30th May 2014 at 4:44 pm

    Guidance is described in Rogets Thesauris as ‘advice’ .
    Anyway, I am intrigued as to how any unbiased guidance can be given to anyone who has more than one pension plan with several providers and/or trustees.

    Over the last several years I have closely analysed the results from where consumers on average have three different pension plans, administered by various pension providers, and/or their ex employers’ pension scheme(s) totalling about £98,000 in value.
    Many have guarantees in place either via GMP (S32 buy outs), or GARs, or final salary entitlements. Only an adviser who has the necessary FCA permissions (pension transfer specialist) can advise on these arrangements.
    Do we honestly believe for one moment that the FCA are going to relax the ‘know your client’ and ‘suitability’ rules in a new world called guidance?
    Any guidance related to any decision taken to do something or not to do something with any pension plan is advice, whether it is implemented or not. There is no way that any provider can meet this criteria in a transparent open way without falling very short of the already onerous rules enforced on advisers by the FCA.
    The emerging dichotomy between the Treasury and the FCA is doing nothing more than widening an already huge advice gap that will never be filled properly with guidance.
    Let’s wait and see just how big the complaints list will become and how the FSCS and FOS react.

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