The issue of advice on pension personal accounts has been thrown into further confusion after the FSA and the DWP issued conflicting messages to advisers about their duty to consider the means-testing entitlement of clients.
The Department for Work and Pensions has warned advisers they would be “extremely irresponsible” to recommend that clients do not enter personal accounts because of the potential erosion of their savings by means-testing.
DWP chief economist Robert Laslett told a Social Market Foundation meeting last week that means-tested benefits are a safety net that could be altered by a Government at any time and should not be relied upon.
He said: “A financial adviser who told someone they should rely on means-tested benefits would not be doing their job very well.”
But the FSA’s latest newsletter highlights assessing the impact on entitlement to means-tested benefits as part of providing suitable advice.
Scottish Life head of pensions strategy Steve Bee considers that IFAs that do not assess the impact of means-testing benefits will be accused of misselling.
He fears a massive future pension scandal, with thousands of people being pushed into personal accounts and having 40 per cent of their savings wiped out because of means-testing.
He says the conflicting messages from the DWP and the FSA will further encourage advisers to target higher-net-worth clients and result in greater financial exclusion.
The FSA’s comments have also prompted Bee to write to pensions minister James Purnell to call on the Government to abide by the same means-testing checks as IFAs when auto-enrolling millions of people into personal accounts.
Bee says: “The Government should be held fully accountable if it does not ensure that means-testing entitlement is not assessed.”
A DWP spokesman says it will work with the delivery authority to provide generic information on whether to opt out.
The spokesman adds: “We believe there will be good incentives to save for most people. But we are aware that people approaching state pension age when personal accounts are introduced would have a relatively short time to build up their fund. We are seeking views as to whether it is appropriate for this group to be automatically enrolled.”
However, Richard Jacobs Pension and Trustee Services director Richard Jacobs says: “This is legalised robbery. The Government will be immune and the people who will be hit hardest are the poor people who cannot afford advice.”