Ever since the pension freedoms were introduced nearly three years ago, we seem to have been engaged in almost endless debate about advice and guidance.
At first, and for a good length of time after the start date, there was a great deal of uncertainty about what exactly guidance was and how it differed from advice, and the circumstances when each could be given.
Advice itself was rather better understood, at least by advisers if not the public. Ministers lauded the concept of freedom and choice strongly – “It’s your money and it is up to you to spend it as you like”.
So it was perhaps understandable that many members of defined benefit schemes with funds valued at more than £30,000 objected to being required to pay a regulated adviser to get sign-off to transfer out. This, in turn, has led to the growth in insistent clients and the problems that has created, both for advice firms and the individuals concerned.
Now, somewhat surprisingly after almost three years of allowing (if not actually encouraging) people in defined contribution schemes to exercise their right to make full and unfettered use of the freedoms, some are suggesting making guidance mandatory for everyone looking to access their pensions flexibly.
Both the Work and Pensions Select Committee and the House of Lords had expressed concerns about the growing number of scams, with the peers eventually voting for an amendment to the Bill setting up the new Single Guidance Body adding the requirement of some form of auto-guidance, albeit in rather vague terms.
When the Bill went across to the Commons, the Lords’ amendment was rejected by the Government, despite the fact they were seemingly now of the mind to have guidance as a default when someone wanted to transfer or access their pension flexibly.
Quite where we are with this particular issue is not completely clear. It was left that the Government would take the matter away to further consider the practicalities of a default arrangement and announce in due course how it intended to proceed. I have no particularly strong views on the mechanics of this.
I can see the desirability of encouraging, even nudging, people into taking advice or guidance prior to accessing their pension savings but I do not see that guidance can or should be made mandatory, or even necessarily become a default requirement.
What concerns me more is the shifting nature of government policy and why the strategy was not properly thought through before the trigger was pulled on the freedoms.
Simplifying system lead to more complications
No one seems to have anticipated at the outset just how many people might need help in coping with their new-found freedoms and, contrary to the impression that was being given, we were actually complicating the system, not simplifying it.
For example, did anyone in government think for a moment about the policy contradiction of introducing auto-enrolment to get people into a pension scheme passively, without the need for any personal involvement (unless they actively sought it) and the exact opposite at retirement, when life-changing decisions would need to be made by the member personally?
And I do not believe there was any real appreciation of the extent that pension scams could develop on the back of the new freedoms, reaching the scandalous level they have reached today.
Could more have been done from the word go to protect consumers from the scammers, and why has it taken so long to get a cold-calling ban into law?
Even the setting up of the new Single Guidance Body appears to have been something of an afterthought.
Despite the best efforts of the highly competent but much under-used Pension Wise service, it should have been formed at a much earlier stage.
I am sorry if I am sounding over-critical about the way the pension freedoms were foisted on us and the mistakes that were clearly made. Yes, there have been casualties and there will undoubtedly be more. But I should, of course, mention in conclusion that the freedoms still appear to be popular with the public, and many people are probably very pleased with what has been have delivered for them.
Whether in years to come, and after such an uncertain start, they will still feel that way remains to be seen.
Malcolm McLean is senior consultant at Barnett Waddingham