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Malcolm McLean: Will Osborne be haunted by guidance ‘guarantee’ pledge?


The use of the word “guaranteed” in relation to pensions has caused problems in the past – particularly when quoted by ministers or appearing in government-sponsored leaflets, reports, press releases and the like.

In common parlance, a guarantee suggests a definite commitment to do something or provide something the person, or persons, on the receiving end has every right to expect to be delivered with no strings attached.

But that has often not proved to be the case in our industry. Guaranteed Minimum Pensions have, in various situations, fallen short of what their title has suggested.

I recall vividly, when the campaign was in full flow to secure compensation for those workers that had lost their pensions when their companies had collapsed, it was claimed an FSA leaflet had described final salary schemes as “guaranteed pensions”. Workers had relied on this to feel secure in expectation of a full pension come what may.

The then head of the FSA did not help much when he explained “when we said guaranteed, we didn’t mean guaranteed in every situation”. The remark did not seem to impress the Parliamentary Ombudsman overmuch at the time. Say what you mean and mean what you say was the message that came across loud and clear on that occasion.

And so to the present day. With the benefit of hindsight the Treasury may now be starting to regret the Chancellor’s very ambitious statement that all new retirees when the pension freedoms come in will be guaranteed independent expert guidance, face-to-face if required, as well as via the telephone or on a website.

How to deliver this is the question and is clearly a major challenge.

It is totally impracticable for Citizens Advice to provide blanket coverage for the entire population regardless of where they live without offering a home visiting service or being prepared to refund all the customer’s travelling expenses for coming to it. Neither option, as far as I am aware, is one it is considering or can realistically afford to do.

Similarly, it cannot reasonably claim to be providing an “expert” service given the salaries on offer and its declared policy not to require pensions knowledge or a qualification for its newly-appointed guides.

There is also the question of capacity. Economic secretary Andrea Leadsom said on Money Box recently it did not want to overstaff the Pension Wise service. At this point in time there does not seem much danger of that, with as few as 300 staff to deal with the 300,000 a year that could potentially attempt to access it – particularly in the early days. The chaotic launch of pensioner bonds should have sounded warning bells in that respect.

In fact, those bells may be ringing loudly in Whitehall at the moment. The late, late announcement of the introduction of a second line of defence – or “additional protection” as the FCA is describing it – could be a sign of real concern about how the new freedoms could backfire right on the cusp of the general election.

It is difficult to believe that directly, or indirectly at least, the Treasury or perhaps even Number 10 itself were not involved in what many are seeing as a clear policy U-turn. Pensions and politics these days are never far apart and sometimes can be a major factor in hasty policy decisions that have to be substantially modified or even fully withdrawn at a later date. There is certainly a feeling in some quarters that the Budget reforms, while welcome overall, had not been fully thought through as to their impact and operation at a more grass roots level, and could have benefited from wider consultation and a longer timescale for introduction.

We shall no doubt find out the truth or otherwise of that in due course but, if nothing else, I would urge George Osborne – and indeed any other like-minded politicians or senior representatives – to think very carefully before using the word “guarantee” in future.

It may be the wrong word at the wrong time. Wrong words and phrases can and do come back to bite you on occasions and that can be very painful for all concerned.

Malcolm McLean is senior consultant at Barnett Waddingham                                                                        


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Andrea Leadsom has lost my vote.. Liked the article though Malcolm.

  2. Surely, a more practical approach would have been for:-

    1. the FCA to mandate OM as the default option,

    2. the government to create a system of redeemable vouchers for authorised and qualified intermediaries to cover the cost of an initial guidance session and

    3. stipulate that providers shall not facilitate the vesting of pension funds unless the policyholder can produce some sort of certificate to prove having followed Step 2 above?

    It wouldn’t be perfect but would it not be very considerably better than the mess currently looming as a result of the government having failed to consult with the industry? Will there be a non-advised dash for cash, as predicted in certain quarters?

  3. Of course Mr Osborne may find himself out on his ear come May and his words of offering pension guidance guarantees, meaningless. The ‘whoever’ gets in next can renege on the whole idea as impractical and we’ll see it for what it is. A big shambles.

  4. George Osborne actually said “Advice” not “Guidance” and then when challenged he repeated that he meant “Advice” the day after he first said it. He never publicly admitted to meaning “Guidance”, but in the background the wording was changed to “Guidance”. A great article highlighting a social problem not an advice problem. But the real problem is that so many end up with pots of £30,000 or less at the point of retirement. Taking the current pension age of 65 and assuming 15 years life expectancy, that’s £2,000 per year ignoring inflation or implicit returns. Not exactly going to get people very far is it? So whether they buy an annuity or take the whole pot at once, neither outcome is desirable, and taking regulated advice on such a small amount is hardly likely to justify the cost of full regulated advice. In this context the use of the word guarantee in relation to guidance is less dangerous or deceptive than the other cited examples found in previous government announcements/publications.

  5. George’s problem is that he made two statements that turned out not to be 100% reality. The second was that everyone was going to get a full basic state pension of £145 a week, so there would be no need for means testing. If that had been true then the pension freedoms would have been much safer for everyone. It isn’t true, so most people will get considerably less – therefore if they blow their pension fund they could spend the rest of their life on a poverty income.

    If re-elected, Mr Osborne needs to make this a reality, which can be partially funded by dismantling the means testing bureaucracy. Then his pension freedoms can be more safely enjoyed.

  6. @BrianGannon – I think you’re missing the point. £30K is going be a large sum of money for many people, and without proper advice people could end up paying far more tax than they ought to.

    There are more options than ‘taking it all in one go’ or buying a £2,000 annuity.

    But all George Osborne seems to be worried abut is the tax windfall just before the election….

  7. Hi smithy0364. No I hadn’t missed that point. That fact can be explained in a guidance guarantee meeting/phone call or can be included in provider packs second line of defence. So my point is possibly more worrying. Ie. Having only 30k to show for a life of working

  8. @Smithy for smaller pots, the cost of REGULATED financial adviser can easily exceed the tax saving. Guidance to draw a small pot over a 2 year period and this only resulting in perhaps a 20% tax rate is NOT a regulated activity and could be provided with a man on a bar stool, an accountant a solicitor or any other individual.
    Yes, if the whole £30k is taxed at 40% rather than 20% it will cost an extra £6,000, but earnings where I live are not much over £20k as Thanet is one of the most depressed areas in the South (East) with the loss of it’s coal mines, ferries, Pfizers and now Airport (why build san extra runway at Gatwick or Cliff when there is one already here?).
    For many local to here, spreading this small pots over 2 years will save a maximum of £2,000 tax, which whilst not insubstantial, as regulated advice on pensions has a realistic bar for entry I would say of about £600, the starting point for small pots MUST be Pension Wise and only then signposted to an adviser where needed/cost effective.

  9. @Phil, again that’s kind of what I meant to say!

  10. Self defeating transactions only ever benefit the advisers and providers as a rule, something the FCA is on to. Perhaps left well alone, and we stick to our normal activities where we can add value.

  11. I agree Geoff, advice on small pots will be a self defeating activity and the FCA need to come up with a solution which protects advisers who would be happy to give guidance (i.e. pro bono) on a small scale but only if they were not then held liable, just as the Pensions Wise staff will not be.
    I have a part qualified (level 3 so far) staff member who knows enough about pensions that he could provide guidance and I would be happy for him to do so were it NOT for the risk that this then posses to my business. Fortunately I a trade as a Ltd company so I could risk the company and not my personal welfare, but due to the lack of longstop and network personal guarantees, many advisers cannot consider taking the risk.
    This is a similar quandary which occurred with the first Gulf War and the TA in that if you volunteered to go to the Gulf (as many medics were asked to) the legislation was not in place to secure your job on your return and a Queens proclamation was required to call up the WHOLE TA which was un economic. By the 2nd Gulf War the legislation had sensibly been changed to protect volunteers jobs.
    a similar situation is required with Pensions Guidance for regulated firms and their staff for pro bono work and/or the FCA budging on the Longstop discussions (and considering some of the solutions to the problem which they have previously refused to even listen to) which I hope will be allowed time at the APFA meeting with the FCA on Monday 23rd at 2pm at Canary Wharf. I am NOT holding my breath that they will be any constructive outcome fro the meeting, but “those who don’t ask, don’t get” as they say and I am asking them to consider potential solutions to the 15 year longstop issues, particularly for sole traders, partnerships and network members who will often have signed personal guarantees or indemnities to their networks which is NOT equality of arms in drafting of contracts or in law.

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