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‘More damaging than Maxwell’: Experts warn Osborne over Budget guidance risks

Pensions experts have warned Chancellor George Osborne his political legacy will be put at risk if his Budget guidance guarantee fails to protect savers from product provider misselling.

The Chancellor’s pledge that everyone will receive “free, impartial, face-to-face guidance” on their retirement options from April next year has divided the industry.

The argument centres on the role insurers should play in offering guidance, with the Treasury understood to favour handing providers a significant role.

The Pensions Income Choice Association, a group that represents a number of insurance companies and retirement brokers, says Osborne risks being “remembered as the man who did more damage to private pensions than Robert Maxwell or Gordon Brown”.

Pica chairman and Hargreaves Lansdown head of pensions research Tom McPhail says: “It would be easy to just give investors guidance and then walk away. That approach was tried with the open market option and the result was millions of pension savers buying poor value annuities from their existing pension provider; we have to do better this time.

“Unless politicians and regulators take responsibility for making sure investors aren’t missold inappropriate retirement incomes, George Osborne will find himself remembered as the man who did more damage to private pensions than Robert Maxwell or Gordon Brown.”

McPhail argues the FCA, which has responsibility for developing the guidance framework, needs to change its rules to ensure customer communications are fit for purpose.

“The Government’s guidance guarantee must not operate in a vacuum,” he says.

“The FCA needs to build a second line of defence. They must make changes to their rules to ensure product providers develop more appropriate customer communications and make the necessary interventions to ensure people who may not have been through the Government’s guidance service are appropriately protected.”

Financial Services Consumer Panel member Theresa Fritz adds: “If the guidance is to be effective, it must be delivered by experienced, knowledgeable, professionals, who are wholly impartial, working within high quality standards.

“It must be independent of providers who may have vested interests, as only by being truly independent will consumers trust and use it.” 

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Is it really surprising that our politicians don’t understand pensions?

    Either they are independently (very) wealthy or they have their cosy MPs Pension. They are insulated from the real world and that manifests itself in the constant inept tinkering.

    What surprises me is that it takes the ‘experts’ so long to come back and tell the politicians that their proposals are nonsense. It was bloody obvious within 3 minutes of the words leaving his mouth at the Budget.

  2. good day for golf 29th May 2014 at 10:12 am

    Are platforms the new way to strip clients of return? In the old days the excuse was cost of advisers now they just strip the account direct.
    HL currency switch charge 1.7%!!!!! Why? Outrageous commission for an ATM style transaction.

  3. Spot on Harry. In many, probably the majority, of cases, people will have to make a call. Do I want to use this pot to secure a guaranteed income for life, or am I prepared to take much more risk with my future? When I retired a wise actuary put it like this: “do you want to take the risk, or do you want your DB scheme to take the risk?” I decided to take the latter course. As far as the regulator is concerned, advice means sale of a regulated product. So when I stayed with the DB scheme I had not been advised. Had I taken a transfer into drawdown, I would have been advised.

    But no adviser can be responsible when his client decides to take an annuity and is run over by a bus the following day, and no adviser can be responsible if his client runs out of money rather sooner than he or she had hoped.

    This initiative is doomed unless the word advice returns to its proper meaning. An adviser sets out all the options, and invites the advised to make a call. The adviser must point out all the advantages and disadvantages of all the options, but in the end it is the advised who makes the call. The advice is empowering, not prescriptive.

    But that would mean admitting that the regulator had been barking up the wrong tree for the best part of 30 years.

    Norfolk enchants!

  4. Nothing can be impartial if the person giving the ‘guidance’ is employed by a firm which may benefit from the end selection of the consumer. I don’t even feel that I would get impartial advice if I walked into a car supermarket or a electrical superstore – there are usually vested interests somewhere along the line.

    IMHO to be impartial this needs to be either a structured (non-human) form of guidance (i.e. a decision tree) – though that falls short of the ‘face to face’ requirement or 3rd party impartial guidance or advice – noting that there is an important distinction between guidance and advice.

    I suspect this may come back to haunt George Osborne but I’m all for the principle of increased consumer awareness.

  5. I’m still curious where this army of impartial unpaid advisers is going to come from to meet the chancellors promise.

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