Otto Thoresen’s plans for a national money guidance service will fail unless the effect of means-testing on personal accounts is addressed, says Royal London executive director John Deane.
The service would offer the public information and guidance on saving and borrowing, budgeting, retirement planning, protection, tax and welfare benefits.
Deane says there is “nothing not to welcome” in the report but he believes that problems surrounding means-testing and auto-enrolment into personal accounts could mean the service will fail from the start.
He says: “Otto’s report talks about a blueprint but it stops short of addressing the key challenge for generic advice which is what do we do on personal accounts?
“If we do not address personal accounts and the biggest issue around pensions in terms of auto-enrolment, there is a danger this proposal will fail its biggest test.”
Deane says the Government should provide greater clarity, pointing to research from the Pension Policy Institute suggesting that 20 per cent of people could lose 80 per cent of their benefits as result of means-testing.
He says: “There is concern that four out of 10 people would be worse off. If that is the case, the first challenge for this proposal of generic guidance is to address that. What advice would it offer?
“The danger is that we head down a road which gets us back to a place where we do not offer great value. Have we really achieved anything other than spending considerable amounts of money?”
The former Old Mutual corporate development director is also warning that the money guidance scheme could double up on public education services already provided by the FSA.
He says it should consider whether money guidance can be independent, add value and be distinct from the FSA’s provision of impartial financial education and advice.
Deane says the industry would not be happy if there was an overlap with what the regulator already provides. He says: “It seems to me that we need to be clear about what the FSA does as opposed to money guidance.
“Is there a duty for the regulator in terms of guidance? If we work in terms of what the FSA sets out under its strategic objectives, it is supposed to help consumers achieve a fair deal and promote public understanding of financial system.
“There is a lot of educational stuff out there which the FSA already produces. I do not think we need lines of demarcation but the FSA is already explicitly and implicitly doing lots of this. Where does the effort go? Should the FSA effectively withdraw from education or does Otto take over? Are we doubling up on the work?”