How often have we all lauded announcements made on Budget day, only to find the policy unravelling in the aftermath, when the “experts” have had time to examine and digest the fine detail of the proposed changes?
The announcement in the 2014 Budget with regards to pension freedoms was, to a large extent, a prime example of that. It was certainly a big surprise on the day. There were few of the Chancellor’s own officials who seemed to know what he was cooking up and as far as I can gather virtually no one in the pension industry had the slightest inkling of what was going on.
With the benefit of hindsight, whereas it would be wrong to describe the policy as anything approaching a disaster, there are clearly aspects that were not fully thought through and now the chickens are coming home to roost. One of the most important of these is the vital question of back-up for individuals on what they could, and possibly should, do to take best advantage of the freedoms.
Pension Wise was put in place in the beginning but gave the impression of having been cobbled together on the back of existing organisations that were not geared up to cope with the various complex situations the new freedoms would produce.
There were, in fact, three bodies given a role: the Money Advice Service to develop a website, The Pensions Advisory Service for telephone enquiries and Citizens Advice for face-to-face capabilities. All three were charged to provide guidance, not advice, but all three were distinguished by the fact they had the word “advice” or a variation of it in their titles. Potentially a source of confusion and misunderstanding from the word go.
And so fast forward to the Budget earlier this month, where we now learn there is to be a major restructuring of the entire guidance system, with the Government pledging to merge Pension Wise and TPAS to create a new body. The MAS would for all intents and purposes close down and be replaced by a much smaller money guidance body.
What quite all this means operationally is not completely clear. Will TPAS on its own effectively become the new pensions guidance body? What will happen to Citizens Advice participation? Will there still be a face-to-face service and how will it be delivered?
Without specifically addressing these sorts of questions, the Government claims “by removing duplication and reducing over-heads, the new delivery model will allow more funding to be channelled to the front line, while also reducing the burden on levy payers”.
This is all well and good but it does beg the question as to why it was not possible to get it right first time round. Was it because freedoms were announced and brought in without full and proper consideration of the consequences, and without providing the right back-ups and support needed?
Offering people greater freedoms and flexibility in deciding how to use their pension savings is without doubt the right and proper thing to do, but it does complicate the process somewhat and exposes the consumer to a number of risks. There is clear evidence many people are paying a lot more in tax than previously (in some cases knowingly but in others unwittingly) and on a depressingly more frequent level becoming the victims of fraud and scams targeting their hard earned pension savings.
It is essential we have proper, accessible and competent advice and guidance arrangements in place to assist savers to make the right decisions in relation to their pensions. If the Government does not believe the present Pension Wise set-up is up to the task, then it should get on with reforming and changing it without further delay.
Hopefully in doing so it will take account of industry views and wishes and make sure it gets it right this time round.
Malcolm McLean is senior consultant at Barnett Waddingham