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Nic Cicutti: Budget guidance is disaster waiting to happen

A mishmashed, generic system is a disaster waiting to happen – and could be easily avoided


Many years ago when I was a nipper, I was sleeping at a friend’s flat in the East End of London. We were woken at about 5.00am by a booming roar, seemingly just outside our bedroom window but in fact more than half a mile away.

My mate’s mum and dad were already up and getting ready for work so they went out to take a look. When they had not come back an hour or so later, we went to join them at the scene.

The huge booming sound we had heard was the side of Ronan Point, a new council-built 22-storey tower block in nearby Canning Town, collapsing like a pack of cards after a gas explosion.

Five people died and 17 were injured in the dreadful accident. A subsequent inquiry found the collapse had been caused by design faults, as well as poor workmanship.

Ronan Point marked the beginning of the end for 1960s modernist architectural certainties, whose central assumption was that the working classes could be squeezed and bent into whatever accommodation was created for them, regardless of their actual needs or desires.

Lesson missed

More than 45 years later, it strikes me the key lesson – that you should never try to shoehorn human beings into structures unlikely to suit them – still has not been learned by either the FCA or the Treasury.

Last week’s announcement on the structure of the Government’s proposed pension guidance bears all the hallmarks of an abstractly designed and impersonal edifice rather than an organic system that adapts itself to the highly complex needs of new retirees.

The assumption seems to be that generic ‘thinking points’ set out by the Money Advice Service or The Pensions Advisory Service about issues to consider when reaching retirement will lead to potentially positive financial outcomes for people. Lob in a few techno-savvy points about telephone- and internet-based guidance, offer the sweetener of multiple face-to-face sessions and the hope is no one will question the fact that one crucial ingredient is missing from the mix. That ingredient is called advice.

Let us suppose that I am due to retire in a year’s time. I have a pension pot of £80,000, tens of thousands of pounds accumulated in various Isas plus a few dribs and drabs in a couple of semi-forgotten occupational schemes.

My spouse, who will retire three years after me, has some money in her Isa plus a surprisingly large chunk to come from a public sector final salary scheme she started paying into 35 years ago before leaving to have kids, only to rejoin when they left home. Both of us also have pension minister Steve Webb’s new state pension to look forward to.

In theory, we may not be too badly off. But we have other financial needs: our kids have jobs but are struggling to raise a deposit on a house; our own mortgage is almost but not quite paid off; and we would like to take a long-promised two-month trip to Australia and New Zealand when we stop work.

Either way, our requirements are likely to be completely different from those of our next-door neighbours, who may have provided for themselves far more successfully – or less well, who knows? 

They may be expecting a bequest from their ageing relatives or have had children in later life who have yet to start university. Both issues need planning for. 

Generic advice, let alone generic advice from a grotesquely expensive, staggeringly inefficient, risibly self-promoting organisation such as the MAS, just does not cut it, for them or for us.

Barring a minority – who either milk the system by opting to take repeat guidance until they have finalised their options or already had a damn good idea what they were going to do anyway – most people will drift in and out of their one-off generic advice sessions none the wiser, assuming they even bother.

Yet advisers are expected to pay up to 30 per cent of the cost of this service even though the ultimate gainers will always be providers whose products are used to create the complex combination of income streams and cash lump sums that future retirees are likely to need in old age.

What should have happened is that providers – and the Government – would have paid a certain sum to every retiree in the form of a voucher for, say, £100 that they could have taken to a number of accredited organisations, including IFAs.

Those organisations could have offered different advice options, with the generic online versions being totally free and the telephone-based or face-to-face ones bearing a cost. Accredited advisers could have operated in a similar way to now, to the effect that the first 30 minutes or hour of their time is free. Add in the voucher and you are on the way to buying a reasonable wedge of that adviser’s time. 

Chuck in two or three hundred quid more and the basis for some solid advice, probably software-generated but still personal enough to be actionable, would have been possible.

Instead, we have a mishmash of a system that will not solve the needs of tomorrow’s retirees. Indeed, in my sleep I can hear another financial Ronan Point tower about to crash – but the number of casualties will be far higher.

Nic Cicutti can be contacted at



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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Martin Bamford 31st July 2014 at 8:54 am

    Nic, I entirely agree with your assessment of the proposed Guidance Guarantee (although I would personally add ‘rushed’ to the mix), but you lost me when you started suggesting solutions.

    The idea that the first 30 minutes or an hour of our time is ‘free’ is wedded to the old commission model, where time was merrily exchanged free of charge on the basis it might lead towards the sale of a commission paying product. It doesn’t work like that now. We might offer a first meeting ‘at our expense’, but only for prospective clients who have passed certain filters and demonstrated commitment to a fee-paying relationship.

    One thing is for certain though; the Guidance Guarantee as proposed will result in failure. An expensive failure at that.

  2. Nic,
    I think the levy is a intentional distraction to make this more palatable to the UK taxpayer (voter) in that somebody else will be seen to be paying for the advice/guidance/MAS. The service could be paid for out of general taxation most other government sponsored services are. Retail UK financial services and products already make significant payment into general taxation so this apparent hypothecation of the money is nothing less than a deception.

    Setting advisers vs providers vs consumers merely results in divide and conquor. It would be more honest, less distortive and certainly cheaper to finance all of the bodies involved in financial services out of general taxation. In the end the only person who ends up paying for any govenment sponsored service is the taxpayer who also happens to be the consumer.

  3. The Guidance Guarantee is a prima facie government cock-up. Firstly, it’s unnecessary because, even in the current environment of no commission on advised sales, most advisers don’t charge for their initial face to face client meeting. Secondly, George Osborne’s plucked-from-the-air budget allocation of £20m has been swiftly exposed as hopelessly inadequate, thus presenting him with a choice between binning the idea (which would make him look rather foolish) or ramping it up massively and dumping the cost onto the industry. To save face, he’s opted for the latter and all we intermediaries can do is try to argue the toss over the 30% that the FCA has decided to allocate to us. One would hope that APFA’s representations on the issue are successful though, on the strength of its achievements to date, I for one wouldn’t bet on them being so. What will it do, indeed what can it or any other body do, if the FCA just says We’ve decided that 30% is what it’s going to be and that’s final? The Treasury has given the brief to the FCA and however the FCA decides to implement it is unchallengeable.

  4. Fair point Martin. I’m sure there are a variety of ways of filtering out those who you don’t think will want to proceed with your services. Being absolutely up-front about your ongoing advice charges to anyone who contacts you is one of them.

    Either way, I’m sure many advisers/planners would at least give someone the time of day, albeit briefly, if they came along with a £100 voucher and said they might want to pay for some additional advice.

    The use of initial online questionnaires to tease out information from a client, thus limiting more costly face-2-face time might be one of them, who knows? I’m not pretending I have all the answers: advisers would have to work out their own business propositions and strategies to make this work for them.

    But what I’m sure of is that the government’s proposed service will be a flop: it will have barely any effect in terms of people reaching decisions they would not have made anyway. A small minority will make wrong decisions that will prove costly, if not far worse.

    And all of this could be avoided by placing the concept of proper financial planning at the centre of the decision-making process when reaching retirement.

  5. Yep, can’t disagree at all Nic, won’t happen though!

    Government et al seem intent upon travelling down every path that they can to avoid the existing qualified advisory sector and it’s shocking requirement to charge for its product.

    Who knows, perhaps if banks can self-certify individuals as fit and proper by next year, then they could maybe offer the service (whilst promoting/selling other things alongside it)…Hang on, call me cynical but there’s an idea…Watch this space!!!

  6. It’s easy to look at this as something that won’t work or will flop. But that’s comparing it to a gold standard of advice for everyone that is unworkable given the costs involved against the average pot.

    On the other hand, if we look at where we are now and what it might achieve, there are probably some positives.

    As it stands the vast majority of clients will purchase an annuity from the provider they are with or will have a stab at doing it themselves. In the brave new ‘take your money’ world they will spend it or seek income. Either way they will likely get poor value for money and/or not achieve what they wanted. The remainder are likely to be clients with larger sums that will seek out and pay for advice anyway.

    Run properly the new system will at least give the opportunity to the public to get information about what they need to consider and think about. Some will ignore it. Some will take it up. Some will use it to good effect and some will be lead to advisers. To me that’s a positive because it’s better than now. I acknowledge that it remains to be seen whether it ends up as value for money overall BUT it is progress. The view seems to be that if it doesn’t do the full planning job then it isn’t worthwhile. I beg to differ. Small steps are better than no steps.

  7. It is fair to say that the Government and their quangos have not got any idea really, but we keep bearing the costs of their clueless and misguided ventures. Honestly, does any other country in the world have such a bunch of buffoons in charge? Answers on a postcard please!
    Oh and I largely agree with what you say Nic, people need advice not generic guidance that could cost them thousands when they make an incorrect decision based on that generic guidance.

  8. Actually I don’t have a problem with the guidance service as such. I do though have a real problem with being made to pay for it. The MAS has an £81m budget here is no reason why it cannot deliver this service from within that budget.

    The Government did not consult on this. It went from The Chancellor promising £20m to fund it to one line in the Freedom and choice in pension Government response to feedback stating that they would legislate to charge the levy.

    I agree with Lee Tomkins they seem to be really clueless. Chancellor makes a rash promise without having thought through the details

    By the way rumour has it MAS didn’t want to do this isn’t it about time we had some honesty?

  9. Something had to be done and form a lot of people availing of the new guidance, a bit of sensible information from an independent source as simple as “There are lots of ways to take income….” may well be enough to allow them to either make a purchase that they feel comfortable with. Thats fine and dandy, however Where the huge majority of advisers are raising concerns is that we are going to have foot possibly 30% of the bill and we all know that regardless of what the FCA estimate the annual cost (initially) it will be hugely more expensive than that in reality. Where else would you get an industry where a portion of of that industry paying for people outside the industry to give customers guidance to not use it to solve their problems. It is ludicrous and how the FCA can justify this defies logic and belief, but hey its only another 30% onto your FCA Bill to pay for MAS increasing “responsibilities”

  10. I’m with Mr Bamford on this…. but Nic, isnt it about time that the financial press changed its tack?

    What I mean is that Journos generally look for sensation and the bad in every turn (because people generally like to read it!) but if you all agree that these proposals are nothing short of madnes then could you and your colleagues start to recommend and ‘sell’ the idea and benefit that it is okay and actually the best money you may ever spend, in seeking out ad paying for [ideally an IFA] advice.

    Why do people and politicians think advice, financial or otherwise, shoudl be free? Its a cultural thing and it needs to change. Government is best placed to do this.

    If people want better cars, they pay more, if they want better hoiidays, they pay more, if they go to a dentist or optician, they generally pay for it, if they want a new TV, they pay for it!

    What is so bad about paying for qualified and generally well protected advice?

  11. Jamie Smith-Thompson 31st July 2014 at 2:47 pm

    Interesting piece Nic, and we have to wait and see what will happen and what, if any, changes are made over time to improve the service. Vouchers are definitely thought-provoking because of the multitude of ways they could be implemented.

    The positive side is that it’s drawing attention to the importance of advice, and we have certainly seen a change in our business since the Budget announcement. The frustrating element is seeing so many refer to it as free advice rather than guidance, and the distinction needs to be made clear to people, but if I can quote myself from a recent article in the FT:

    “Ultimately, I think it could benefit advisers in a strange way. What it could do is highlight how many different options a client has. Having worked in financial services for many years, I know that the more options you give, the more difficult it is for the end client to choose. I think it will kick-start people into thinking about advice more. It could be a positive thing for advisers. But us paying the levies doesn’t bode well,”. (You can read the full article here: )

  12. Soren Lorenson 31st July 2014 at 2:51 pm

    I was listening to a debate about local television yesterday. The conclusion was that a departed minister, in this case Jeremy Hunt, decided that we needed local TV with no evidence or proof that anyone wanted it. He got the BBC to pay £40m for it and now the stations are set up they are finding that no-one is watching. Essentially £40m that could have made some top quality programmes for us all is now being used for London Live and Norwich Today that nobody is watching.

    It’s reassuring to know that the government does not exclusively direct it’s incompetence at financial services but worrying how far their ineptitude extends.

    Whilst I dislike the FCA as much as the next man, they have been stuffed with this too. Everyone knows it won’t work. Nics £100 voucher would be a cheaper and fairer alternative.

  13. Nick Pilkington 31st July 2014 at 4:05 pm

    Personally I am not going to be involved in anyway whatsoever.
    Any scheme that suggests those with pension pots can take the money out & do what they like with it & requires me to advise accordingly is just setting up a future bonanza for the Claims Management Companies.
    Australia & America have operated on this basis (& we tend to follow their lead) & are now facing massive problems with Australia considering changing back.

  14. I think the point is being missed. At retirement, assuming the availability of some assets, people have to face myriad uncertainties. They do not know how long they will live. They do not know what investment returns will be. They do not know what inflation (or deflation) will be. They do not know what governments will do to taxes, or to the state pension. Advisers don’t know either.

    Thus, any generic guidance or automated advice will have to be based on a series of assumptions, all of which will most likely be proved to be wide of the mark.

    For most retirees, the question to be answered is: “do I want to take the risk of dying too soon, or the risk of living too long?”

    Having answered the question, an adviser may assemble a perfectly sensible set of packaged solutions. The client who opted for the ‘living too long’ – the cautious route – will then die a week later and the relatives will sue because they have ‘lost out’.

    The definition of advice has to change, so that these at retirement issues can be crystal clear. The retiree has to make the call, having been briefed on all the uncertainties. The adviser has to be judged on whether the response to the call was reasonable in all the circumstances.

    Anything else will be a nightmare.

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