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£30,000 advice limit has resulted in ‘market failure’ TPAS chief says

The Government’s £30,000 mandatory advice limit for safeguarded benefits has resulted in a “market failure” according to The Pensions Advisory Service chief executive Michelle Cracknell.

In the wake of the pension freedoms, the Government required consumers to take advice when transferring out of a policy with safeguarded benefits, including defined benefits and guaranteed annuity rates, if the value of the pot is £30,000 or more.

Speaking at a Money Marketing Wired live debate yesterday, Cracknell said that advisers were often not willing to take on these lower value clients, leaving them without the help they may need.

She said: “One thing we are dealing with here is a market failure. In certain instances, you need to get regulated advice if the pot is over £30,000. If I got a pound for every customer who has come to me and said I can’t find an IFA who is prepared to give that advice, I would have a great pension.

“We have got a market failure that does need to get resolved in modest sized pots over £30,000 but below a level which – if you are doing all of those pieces of work and convert the fee into a proportion of the pension fund – will still look expensive.”

Cracknell called on guidance services to work with advisers on ways to bridge this gap.

“Making sure those people at least get public service guidance is really important. From that we need to work closer together from the advice sector to say is there any way where we can service people with pots above £30,000, maybe below £100,000, in a more economical way that we are at the moment?”

Cracknell said advisers had a valuable role to play, however, particularly when it came to making sure consumers’ drawdown schedules were sustainable.

“A lot of our customers who indicate they want to go down the drawdown route don’t actually realise the money is going to be invested. Then you think about the complexity of the investment in drawdown and when you are accessing money, what time you access the money obviously makes a huge amount of difference if you are accessing it at a point when the market is low.

“The real concern is when you first access your money, five years into retirement your priorities will have changed significantly and, if you don’t have an adviser, who is actually going to say this is no longer for me and I want some more certainty?”

Bringing advisers on board

Cracknell said while some people had seen advisers as a block to accessing their pensions since the freedoms, she was optimistic overall on the reforms.

“We had so many calls about people either fed up because they had to go through and pay for some regulated advice and they didn’t realise they had to and calls from people saying ‘my company didn’t allow me to withdraw my money in a way that I want to.’

“The perception was it was going to be as easy as dipping into a bank account and it is absolutely not as easy as that.

“At the moment we have got a long journey to take people from being recipients of pensions which they have been to date to actually being consumers of pensions.

“The success has been the number of people talking about pensions. That’s fantastic and a really good starting point. The focus at the moment is how to take the money out, but at least they are talking about pensions.”

Also speaking at the debate, Cervello Financial Planning director Chris Daems said “true financial planning” was becoming more prominent since the freedoms.

He says: “One of the benefits of seeing an adviser is we are now seeing cashflow come to the fore a lot more because we can plan for that lump sum and longevity…What we are seeing now is true financial planning come to the fore as opposed to being based around products which is great news for financial planners.”

Watch the full debate, which also features Tisa’s Adrian Boulding and Metlife’s Simon Massey on demand above.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. No Ms Cracknell. It is not advice failure – it is p[erhaps failure to provide advice. The real failure is actually the regulatory burden. In case it has escaped your notice, advisers are not charities. Costs just cannot be covered at this low level. If only £750 were charged it would equate to 2.5% of the fund – hardly cost effective for the client and probably not cost effective for the adviser. Apart from anything else we are abliged to keep our records indefinitely – so it would hardly cover the cost of archive (even on a computer), let alone the future requirement to tape record everything.

  2. Ms. Cracknell needs to sit down with an adviser and physically be taken through the ‘whole’ advice process including preparation, presentation(s),documentation completion, file formatting and processing of business (or just advice). She may need to give up a full day in order to do so. Maybe then she can better determine where the costs lie and why.

    Clearly she does not understand how our industry functions and that is in no way a slight on her situation (although she should perhaps take time to find out before commenting). The same holds true for all of those who choose to remark about the costs of giving advice (and the contingent issues surrounding this), as their observations are predictable, naive and tiresome.

    I am sure there are advisers who would gladly allow themselves to be shadowed for a day if asked!

  3. To the two contributors above, Ms Cracknell did not state it was an advice failure, but a “market failure”, and clearly identified that the complexity and cost of advice was an issue without blaming advisers for it. Clearly neither of you have bothered to check her CV, otherwise you might have realised that not only has Ms Cracknell actually run an advice business in a previous life, but she also spent time working in a two-times Chartered Firm of the Year where she had direct exposure to the advice proposition and its costing!

    • The market failure is ‘due’ to the costs of advice and the need to obtain it for certain circumstances and therefore it is at the heart of this problem/dilemma; so if we can deal with this, then we can solve a large part of the problem, which I believe is the thrust of what Ms. Cracknell is suggesting (OK she understands why, I get that, but what I don’t see is anything concrete or feasible in her suggestion!).

      The solution cannot be to hand over a ‘part’ of the pension crystallisation advice/guidance process to a guidance service (PAS) and for the advice sector to fill in the gaps, as the advice process would then be flawed in terms of who takes on the responsibility for what (but I think that we all know that will be us, the advice community, come what may).

      The solution is for a new form of regulation which sets out the parts (in plain English), that we can and cannot do and leaves no uncertainty as to who takes responsibility for what (a decision tree if you like, but with proper branches and leaves).

      That cannot happen as the Regulator and Government seemingly have no desire to take on such liability and who can blame them, better to leave it to us to pay for it…. and there we are, full circle!

    • Kevin, I’m aware of Ms Cracknell’s CV (I remember her at Skandia). I take your point about Market/Advice, but in my post it is substantially the same thing. The reason there is Market/Advice failure is in my view due to the burden of regulation and the claim culture it has fostered. I accept that there are still cowboys who would rip off the vunerable – but what is that other than another regulatory failure?

  4. “…….Cracknell called on guidance services to work with advisers on ways to bridge this gap.” At the risk of sounding extremely stupid here, all the guidance session in the world will not allow the holders of these such plans because they are required to have regulated advice. This gap cannot be bridged this way. One positive note is that I am heartened to hear that so many people have tried to get an IFA to do this for them only to be refused. Just right too, because what decent IFA is going to get involved in all the work required for £750?

  5. Ok so £750 equates to about 5 hours of time, is it feasible to look at all options and delve deeply into a potential new clients situation and then provide properly documented advice and make a profit. This is as well as paying the various levies to protect people from themselves?

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