How should the UK public be supported to make wiser financial decisions and to be helped out of the mire if monetary disaster strikes?
Last week, the Government told us its plans: it will create a new body out of the ashes of the Money Advice Service, The Pensions Advisory Service and Pension Wise.
According to ministers, the new entity will become a single point of reference for anyone seeking not just pensions guidance, but also money “advice” and information more generally. If people need additional help from other organisations, for example debt charities, the service will point them in that direction.
Pensions minister Richard Harrington was quoted as saying: “A single guidance body will be more efficient and will help consumers make the right financial decisions, and we are committed to ensuring people can access the best free and impartial financial guidance possible.”
His comments followed former chancellor George Osborne’s announcement in March, sounding the death knell for MAS – although, it has to be said, its death throes seem to be taking longer than many of us thought they would.
Osborne’s original statement envisaged two organisations in place, one focusing on pensions, as Pension Wise and TPAS currently carry out, the other looking at wider issues such as money and debt, as MAS was first set up to do.
My own view, expressed at the time of the then chancellor’s Budget speech, was there is a need for a single organisation to take on the new role, combining every area of financial “guidance”, “support” and “advice”.
At the end of the day, it is clearly impossible to separate pensions from other money issues. Young people starting out in life need to have a greater understanding about potential retirement decisions they make, while older people’s concerns about their pensions are linked inextricably to how to manage their finances with the finite resources they have.
That is why, I am glad that, following consultations with the financial services industry, as well as other interested parties to determine what the new organisation should look like, the Government has chosen to go down this route.
“There is a need for a single organisation to take on the new role, combining every area of financial ‘guidance’, ‘support’ and ‘advice’.”
Treasury economic secretary Simon Kirby was quoted as saying: “We strongly believe creating one public guidance body is the best way of making it as easy as possible for people to access the help they need to get their financial questions answered.”
A lack of direction
What is still completely unclear is what form this organisation will take and what its actual mandate will be. Despite six months of discussions between the Treasury and the Department for Work and Pensions, which funds TPAS, no model was outlined in the two departments’ statements in terms of what the new financial guidance body will look like, what its relationship will be with regulators like the FCA and how it will ultimately be funded.
Both TPAS and Pension Wise receive financial support from the Government, a large chunk of it from the DWP. Yet Osborne’s original statement in March was that, as the Treasury subsequently explained, its replacement would be a “smaller” advice body.
My concern would be if the Government tries to seize the opportunity offered by merging the different forms of financial guidance and support in order to reduce its own contribution to the combined body.
What did for MAS was not so much the amount of money allocated to it as a result of the industry levy but the way so much of it was wasted on bloated salaries, ludicrously exaggerated claims about its effectiveness and ridiculous marketing campaigns.
Ironically, one of the generally unreported elements of former FSA consumer director Christine Farnish’s review of MAS in March 2015 was its finding that even after spending £100m marketing itself, the service’s unprompted brand recognition stood at between 5 and 10 per cent.
If anything, there needs to be more money spent in ensuring people make wiser financial decisions about their money. The issue is not so much about how much money but making sure it is being used effectively.
In that regard, one of the few positives of the MAS is the fact it was prepared to fund organisations – like Citizens’ Advice – to deliver face-to-face debt advice.
Equally significant was the way it has belatedly worked jointly with other commercial providers, for example energy and water suppliers, to agree joint additional millions of funding for debt advice organisations.
This model of working with other organisations needs to be increased exponentially by the new body, both as a means of raising additional funds but more importantly to leverage their expertise in areas where there is a clear need for additional input.
For example, taking notice of the fact that financial education is now part of the national curriculum and providing support to voluntary organisations helping deliver that education directly in classrooms, something the MAS has no knowledge of but the Personal Finance Education Group has. Or entering workplaces to give guidance on retirement planning, something TPAS excels at.
It may take time for the all the discussions to be concluded and for a good model to be created and funding agreed. But it is vital to do it properly the second time round. I very much doubt there will be a third chance to get it right.
Nic Cicutti can be contacted at firstname.lastname@example.org