Every now and then, whenever I write about a financial dilemma faced by myself or a close family member, I receive lots of emails and online messages telling me all I am trying to do is obtain free advice over the internet.
In reality, this is almost never the case: by the time the article appears we have usually already decided what to do. In truth, sometimes I might also speak to a couple of friendly advisers for a few minutes, run a couple of ideas past them and decide accordingly.
Is that cheating? I suppose so, just a bit. Most people do not have the luxury of knowing many advisers and are unable to exercise the same opportunities that we do.
It works both ways, of course. On a number of occasions over the years, advisers seeking guidance on how to translate their thoughts into print have contacted me for help. Or a friend might ask if I can offer their son, daughter or another relative some advice on how to become a journalist.
I have always tried to help with either type of inquiry. Ten or 15 minutes do no harm and it always feels good to help out every now and then – as long as you do not think the person asking for assistance is taking the mickey.
There are some things, however, that even I would regard as beyond the pale in terms of asking for free advice from an adviser. For example, I have not bought an annuity yet. If I did – and advice was necessary – I would expect to pay for it.
Even more so when it comes to selling an annuity: of all the potential minefields for your average 60 or 70-something, that of getting rid of an annuity you have already bought must be one of the hardest decisions to make.
Yet that is one of the new “freedoms” which Chancellor George Osborne announced as part of his March Budget statement barely three weeks ago. In essence, after April 2016, up to five million pensioners who already have an annuity will now be able to sell it if they wish.
The Treasury is expecting the FCA to consult with interested parties to “introduce appropriate guidance and other consumer protection measures” regulating the sale of annuities.
It is expected their buyers will be institutional and not retail, although no word has emerged on whether these institutions might be allowed to package up tranches of these annuities as income-producing funds, or for them to become part of other income funds sold to the public.
For a retired person, the potential complications are staggering: what are your tax liabilities likely to be that year? For example, Guardian journalist Patrick Collinson has calculated the potential tax take for someone aged 70 who receives £75,000 on the sale of an annuity in 2016.
If their only other income is a state pension worth around £6,000 a year, for the 2016/17 tax year they will be taxed on total earnings of £81,000, meaning nearly £40,000 will be taxed at the 40 per cent higher rate tax. Some people, especially those with larger annuities worth more than £150,000, will end up in the 45 per cent tax band.
The Treasury’s announcement in March spoke of people selling annuities to “pay off debts in response to a change in circumstances, for example getting divorced or remarried.”
But what about annuitants’ spouses, some of whom may be unaware of what their husbands of wives are doing and suddenly discover that incomes they take for granted are no longer being paid?
Don’t get me wrong: this is not a diatribe against selling an annuity, merely a reflection on the fact that this, as with a number of other important financial decisions retirees are now expected to make, is one in which expert advice is vital.
The worry is such advice simply will not be sought by those who most need it. In recent weeks, as several stories in Money Marketing have indicated, it is becoming clear the guidance on offer to those wanting to know whether to take cash or buy an annuity will be limited in the extreme.
For existing annuitants, expecting them to pay 3 per cent, say, of their £75,000 pot for advice that may conclude they should not sell up at all is a triumph of hope over likely experience.
Pension Wise was always likely to be flawed by virtue of the fact that it does not offer advice. The Treasury and other agencies, including the FCA, must take responsibility for not being prepared to discuss alternatives, such as a small voucher-type system that could be used towards obtaining that advice.
But the industry too, including both advisers and companies like Aviva that have now done a body-swerve away from offering any kind of guidance at all to their soon-to-be and current potential annuitants, must also take some of the blame for not raising some of these options, including fund-matching to ensure even a portion of an adviser’s time was paid for.
The end result will be seen years down the line – and you know what it reminds me of? This is the home income plan scandal of the early 1990s all over again.
Nic Cicutti can be contacted at firstname.lastname@example.org