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Osborne plays down pension freedoms misselling fears

Chancellor George Osborne has dismissed fears of misselling following the implementation of new pension freedoms in two weeks’ time.

From 6 April defined contribution scheme members aged 55 or over will be able to withdraw their entire pension pot as cash, although withdrawals will be taxed as income.

The Treasury has also published a consultation on creating a secondary annuity market from April 2016. Labour leader Ed Miliband responded by warning of “rip-off merchants” awaiting pensioners.

Addressing the Treasury select committee this afternoon, Osborne insisted the systems created by the Government to support the reforms, as well as oversight from the FCA, will be sufficient to protect savers.

He said: “People can now book their appointments for having that [guidance] conversation about what they want to do with their pension and they can start to book telephone session which will be available from tomorrow.

“The consumer protection is there. The guidance is there. And if people want to they can go and get regulated advice as well.

“We have a good package to make sure that people can get what they need.”

Asked about how protection will be extended to existing annuitants, the Chancellor said: “I would be very surprised if the result of the consultation is that we shouldn’t have the same guidance. Indeed in many cases, because this is a big decision, people will also want to get advice.”

Osborne denied reforms to allow people to cash-in their annuities would likely be used primarily by “desperate” individuals in dire financial straits, heightening misselling risks.

“There are a whole range of circumstances and I’m not trying to anticipate what they are,” he said.

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There are 34 comments at the moment, we would love to hear your opinion too.

  1. The unregulated mis-selling rip-off merchants are already out there, tooling up enthusiastically for what they plainly anticipate will be a tele-sales bonanza for their junk schemes offering completely totally unrealistic combinations of fantastic returns with low risk. These new unfettered access freedoms have thrown the gates wide open for them to go after everyone and anyone.

    And, in view of the fact that the average pensions pot is barely £30,000, Mr Osborne’s assumption that there isn’t going to be a mass dash for cash seems decidedly fanciful. It’ll be the reverse of the old adage that you can lead a horse to water but you can’t make him drink. You can make every effort to steer a horse away from a poisoned lake but, if he’s determined to drink, then drink he will, and without taking advice. The thinking will be that It’s my money and I can do what I want with it. Why should I pay someone just to try to talk me out of accessing my own money?

  2. @Julian – I agree with your analogy r you cant stop a horse from stampeding for water etc. It can take 4 people to stop someone intent on something stupid as I remember from an icident with a dropped handgrenade in the 1990s during a training incident and when someone shoted “get out, get out” when a grenade was dropped in a fire pit by the thrower in error, it was an idiot in the safety bay you tried to get out (of the safety area) and in to the firing bay (danger area) as he misunderstood and it took four of us jumping on him to stop him!
    Do we risk ourselves (PI risk) to help people to do the right thing or not?

  3. Julian

    You are 100% correct we have already turned clients away after trying to point out to them the real downside of withdrawing the entire fund and having a holiday, new car etc. Sadly for some they will not listen and are determined to spend what to some people is a lottery win. I assume there will be plenty other Advisers (or not) out there will take advantage of the situation and anyone who thinks this will not happen is a fool. People like Osborne have no idea what life in the real world is like.

    Although we are extremely active in the Drawdown market we have made a business decision not to get involved in the Pension Unlocking, it is simply a recipe for disaster.

  4. Really Mr Osborne,

    One of my colleagues has received an email from a company called Valhalla Marketing Services LLP, who AR’s of Twigden Asset Management Limited, with a link to an advert from an Estate Agent, Nicholas Humphreys Estate Agent, titled ‘Pension Extraction’ suggesting property investment yields of 8+% compared to 5% from annuities with no mention of capital at risk etc.

    I think you will find it has already started.

  5. It is clear that Mr Osborne did not have a clue about the regulatory position regarding DB transfers when he drafted the legislation, had he spoken to the FCA and FOS he would have discovered that what he is proposing is in fact classified as a high risk activity, professional advisers do not take their responsibilities lightly, and are not going to accept these risks in order to ensure the success of ill thought out policies..

    To dismiss misselling fears as being overblown is both ignorant and arrogant, his soundbites and policies are tomorrow’ s chip paper, the effects on consumers last far longer.

  6. I have raised concerns of this nature with my MP before. When she referred them to Osborne he simply washed his hands of the matter saying it was a matter for the FSA (as was), like a latterday Pontius Pilate.

    He will do it again. The only comfort for any adviser caught out will be that their crucifixion is only metaphorical.

  7. “..oversight from the FCA, will be sufficient to protect savers.” Who is he trying to kid – the FCA has a terrible track record of protecting savers.

    It’s clear he doesn’t think he’ll be around to have to deal with the problems!

  8. I may be speaking out here against the general view on this matter. As an adviser I see my role as giving advice to enable the client to make an informed decision. If, despite my recommendation, the client wants to make use of the freedoms introduced by the Chancellor to buy a Lamborghini or do something else with his money which is not in his long term interest, then who am I (or the FCA) to tell him he cannot? What is the point of introducing these freedoms and trusting the individual with his pension funds if we then seek to restrict those freedoms.
    It seems hypocritical to me to tell people they can do whatever they like with their pension funds provided we agree with what they finally decide.
    As an adviser, I agree that we should carefully document the advice given including all the pros and cons but provided we do this then I see no ethical objection to following the clients instructions even if it is against the advice given.
    Let us take a hypothetical situation (amongst many possible situations) where a pensioner decides to cash in their pension to pay for emergency medical care (not otherwise available on the National Health) for a member of the family. Do I refuse to do this for them, even though it is legal, because it is not for the pensioner’s own long term benefit? The answer is that it is not for me to decide what is or not is for the pensioners long term benefit. The chancellor has given them the freedom to make the decision and it is not for me to restrict that freedom but as an adviser it is for me to advise them of the implications of their decision. I am a financial adviser not a moral or ethical adviser.

  9. Grahame Goodyer 25th March 2015 at 11:16 am

    I agree. It’s a step too far. It’s one thing to allow larger lump sums to be taken from small pots but what about the long term? The politicians are point scoring with voters. What will they be saying in 5 years time when the problems these changes are making will start to stare them in the face due to higher pension costs, retired peoples requirements for larger social benefits, which I thought this government was trying to reduce, and mis-selling?

    Who will they blame this time. Themselves? I doubt it.

  10. @Alan. If you really believe that you are putting yourself at great risk. The FOS will not accept this view in the future and have publicly stated so:

    “Following a recent meeting with the Financial Ombudsman Service, they confirmed that in the event of a complaint, their general position is that a consumer cannot reasonably be expected to understand the complexity and associated risks, unless of course they have equal or greater knowledge than the adviser. They have also made it clear that obtaining an ‘insistent client’ declaration and documenting the risk warnings in a suitability report, will not generally protect advisers against future liability in the event of a claim.”

  11. @ Alan Kendrick, I agree with your thoughts. There will definitely be valid reasons in some cases. However my own view is that it really is not about the implementation of what the clients wants to do. It is about being able to defend yourself when the wife of the example client (or possibly the siblings) make a complaint to FOS. It is going to be soooooo difficult to ensure now that you have covered everything off 100% when a complaint comes in after the money runs out – main reason being we have no idea what they are looking for. I personally do not intend to get involve in it, purely for this reason. I refuse to put myself at such a huge potential risk, no matter how convinced I may be that it is right fro the client now. The CMC’s are already circling like sharks now, just waiting for a bit of time to elapse. FOS are going to be inundated by this in the upcoming years and they will only need to find one tiny thing incorrect or omitted and you will get screwed to the wall.

  12. I think the risk of pensioners falling prey to scams is being overstated. If you want to invest your pension in a scam, you already can. There is nothing to stop you transferring it into a SIPP and then investing it in carbon credits or whatever, and thousands have fallen victim to exactly that.

    The only thing that changes is they can now get people to encash their pension and invest it and bypass the stage of finding a SIPP provider that will look the other way. But why would you? It’s not hard to find a weak SIPP provider. And above all, why would you persuade the client to encash the pension funds and lose 20%-45% of the money you’re trying to steal in tax, when you can persuade the mark to transfer into a SIPP and steal the lot?

    I honestly think it may actually reduce scams. From reading about people who have been scammed I have the sense that people were more willing to part with pension funds than their own money, because the pension fund didn’t really feel like theirs. It was remote, distant. It was easier to persuade them to part with a pension fund than money that was actually sitting in their bank account.

    Now that people know that their pension fund is their money and nothing less, they may keep a tighter grip on it. If you take the pension freedom route, at some point the client is going to have to actually write you a cheque for the money they’ve just taken from the pension fund. They’ll have to write out the actual amount of money in pounds and pence. That is going to make a lot of them pause for thought. Getting them to sign transfer forms for a SIPP is much easier.

  13. I don’t know how many providers have signed up to what appears to be developing into an informal code of practice but it may be that it will become the norm for providers simply not to facilitate policyholders to encashing their pension funds unless they can provide clear documentary evidence of having, at the very least, received Guidance, if not regulated advice. Such evidence might well summarise the guidance or advice given which, in the vast majority of cases, is likely to be not to encash. If the policyholder is adamant that he wants to encash anyway, then he’ll have to sign a statement that his instructions to the provider are contrary to the guidance/advice he’s been given from elsewhere.

    So then, should he come crying to me afterwards about how he can’t manage to make ends meet on just his State Pension/s….

    First question: Were you advised not to do what you did?

    Second question: Why did you ignore that advice?

    Third question: What do you expect me to do about it?

  14. I think it is worth stating that there is a difference between advising a client and the implemenatation of a course of action. There is no danger in advising a client against a course of action. The danger is that, having dones so, you assist them in implementing exactly what you have advised against, i.e. going with the insistent client. A doctor or any other health professional wouldn’t do it, why would you?

    On the other hand all advisers are free to advise as they wish and some fair examples have been given when cashing in might be the right thing to do. The danger lies in how this will be seen at a later date. At present it’s not clear how the FCA and FOS will look at these issues and so you take the risk associated with that. However convinced you may be that you have done the right thing both morally, ethically, financially and in the client’s best interests, if the FOS don’t agree you’re stuffed. Period.

    If you want to bet your business on the above that’s your right, just as your clients have their pension rights too.

  15. I cannot believe we are driving ourselves to such a ridiculous position- can someone explain to me why no-one is actually listening to Osbourne. What good is a £30000 pot going to be to a 55 year old where we will recommend his annuitises it. We are about to do the same thing as always which is getting on our high horse and not listening to what our customers are trying to achieve- which is not stupid- to want to enjoy some of their savings while they are healthy and happy enough to do so- how terrible-we should obviously try and stamp that out…. and since when has the FOS generalised about how they will stand on a case when they have said constantly over last 10 years that they treat every case individually? Since when has the FCA not just asked us to TCF and have good governance in our proceedings? I am currently embarrassed to be part of this industry- this isn’t about rubbing hands in glee, or doing unreasonable things- it is about an advisor looking a customers objectives and recommending a course of action that will deliver their objectives in best way we can. I think we have currently all gone mad. this is not the last pension review- when we had no idea what we were doing or why and actively encouraged/ yes even coerced consumers into thinking transferring FS schemes before retirement was a good idea. Sorry – I seem to be the loan force- but I am so confused by this. This is the consumers money folks…..

  16. @Jane Hodges
    I think you are getting confused. No one, as far as I can see, is saying clients can’t do what they want with the new pension freedoms. The question is about whether advisers get involved in advice on these freedoms. That’s your choice and no one is trying to deny you or the public your rights in this respect.

    This is a discussion about the risks involved for advisers. Regardless of your personal views, when many advisers are expressing concerns and a professional body is also expressing concerns it’s worth taking note but you can always go your own way.

  17. Depressed chap phones a helpline, going to end it all, best method please.

    Good discussion of alternatives, method selected using product supplied by helpline.

    Job done? Hmmmm….

  18. Christine Brightwell 25th March 2015 at 2:29 pm

    Geoff, Osborne didn’t draft the legislation, he probably has not read the final version

  19. @Jane Hodges – Whilst I hear what you are saying, it is the point Grey Area | 25 March 2015 1:59 pm is making I think we need to highlight.
    “No one, as far as I can see, is saying clients can’t do what they want with the new pension freedoms. The question is about whether advisers get involved in advice on these freedoms” and PII may restrict an adviser from doing that.
    A consumer didn’t need an adviser to use triviality when the limit was £2,500, nor when it increased at D day to £18k and nor when it increased to £30k last year. The first example at £2,500 I would say 99.99% out of 100 the advise would have been to use triviality if advice had been cost effective which it would not at A Day, probably 80% and since last April at £30k, probably over 70% of cases. With pension freedoms, the funds between 50k and about £250k do become a really difficult one as on the whole unless a consumer has secure income (as per old flexible pension rules of £12k or even £20k), I would argue, most should still be using a combination of annuities and drawdown and that is what the advice will be.
    If some consumer wants to execute that, after going to an adviser contrary to our advice, I would argue there is never going to be a client relationship, it is a customer relationship and they might just as well go direct to someone like Hargreaves Lansdowne as we can’t help someone commit financial suicide without committing business suicide.

  20. In practice (I suspect), most policyholders who want to cash in their chips won’t be prepared to pay for advice highly likely to be to the contrary, so people like that we can simply send on their way without further ado.

    Anyone as young as 55 probably shouldn’t be thinking about vesting their fund/s on ANY basis, let alone cashing them in. Best advice to them is likely to be to be realistic about their future and put more in.

    Maybe it won’t be a great problem for us if we just make sure we transact no business on an insistent client basis.

  21. Apologies- but I still disagree. Our job is to be professional advisors. It isn’t the FCA or the FOS who need to accept liability for the advice we give. Our customers don’t pay us to hide behind others- they pay us to advise them on the best way to hit their objectives and to explain clearly the reasons for this and the disadvantages of following a different course of action. Not only do I disagree on this but also on some other comments about what a customer at 55 should be doing with their life savings- as if we can judge another persons aspirations. There are many reasons why a consumer doesn’t need an income in retirement from a particular pot of money and may have other, just as important, objectives. It is our job to help him achieve these not turn our backs because it doesn’t fit with our views or because we are worried about any liability in the future. We are supposed to give advice that meets the customers objectives – that is our job- or at least it should be. Know your customer, understand their needs and wants, give the best advice you can, tell them disadvantages of taking another course of action and make sure you do all of this for the benefit of the customer not yourselves and you should have nothing to worry about. We charge for work undertaken not just for product sale and we record all of our customer interactions so maybe there are reasons why I feel braver. Let’s at least this as the opportunity it actually is and let’s make some customers dreams come true. We aren’t all the same and asking for blanket guidance is just not going to work- as everyone needs individual help. And doesn’t everyone read the FCA rules on insistent customers? you will see they are also trying to help consumers get what they need and are providing a responsible route for doing this- This isn’t order taking, it isn’t pension scamming, it isn’t taking money for no good reason, it isnt driving customers to be insistent when they arent really- this is just straight ‘honest to goodness advice’- and to customers this may be the difference between their life’s ambitions, their short term requirements, their new career, their children’s happiness, their potential happiness now and in the future- so let’s get advising them and if we match their objectives and they disagree then let’s help them understand the issues. I am inspired by what the government has done- letting people have control over what they want to do with their savings- our job is to help them not hinder them.

  22. @Sean I too have received the email from Valhalla Marketing Services LLP who are EIS and BPRA promoters, for whom I sign off any financial promotions as an Approved Person.

    To clarify the position, they only market to sophisticated or professional investors, not retail clients, and the invitation was for their professional contacts and non retail clients to look at what one of their own clients may have to offer. This would never reach the public domain, and is not a marketing initiative supported or approved by Twigden Asset Management Limited, simply an in house memorandum issued by Valhalla which has been communicated outside of the intended recipients, which if you read the conditions of the email it is an offence to disclose to anyone other than the named recipient. Perhaps I could have their name and have them removed from circulation?

    The precise wording is ” What will you blow your pension pot on? Lamborghini or something else? One of our clients has other ideas! Do get in touch DIRECT with Nick Humphreys if you wish to know more.” There is no suggestion that this is a financial promotion by either of the two companies you have mentioned.

    This has happened before where someone wanted to create mischief, and your colleague is committing an offence by disclosing the content without authorisation.

    Be assured that if it was intended to be a FCA compliant promotion by an AR, I would have kicked into touch as NOT fair, clear and not misleading.

  23. Geoff I think you will find that it will reach the public domain alas if you visit the website of their client Nicholas Humphreys Estate Agents.

    https://www.nicholashumphreys.com/news/article/retiring-soon

  24. I think that Boy George is just trying to demonstrate how completely out of touch he is. Of course many of the correspondents are correct – there is significant risk and there is also the even bigger risk of unregulated scammers getting in on the act.

    As for Jane’s point of course those with small pots will probably be best served by carefully taking the money, but this whole scenario could have been achieved by just increasing triviality to (say) £50k instead of all this nonsense. Drawdown was already there.

  25. @Jane Hodges – Can you just clarify which firm it is you advise at please as there are two Jane Hodges on the FS register…. which one are you?
    My main reason for asking is whilst I agree if someone wants to do something with their pensions, with the new pension freedoms from April, at age 55, that is now their choice, we need to make sure that they are responsible any decision when either NOT advised or when advised not to do something and they act as an insistent customer (note I say customer) and act contrary to advice. As such I suspect that your PI insurer when you check will have a view on whether you as an adviser can implement/transact business as an ADVISER contrary to your own advice to the customer.
    Pre pension freedoms I had jokingly suggested having a “stupid advice” system where we rank on a 1-6 scale how sensible something being proposed is and I think it particularly appropriate to point out when someone is being stupid and refuse to actually do it through an advisory firm and just point them back to pensionwise who can in turn point them at providers who will do non advised transactional business (HL for example)

  26. @Phil Castle – something I have maintained for some time, my “Comment of the week” dated 6 November 2014 set out my stand against insistent customers, and the FOS have now validated my comments. There is no room for insistent customers through the regulated advice channel, with all of the usual consumers protections.

    What is needed is an alternative ” no questions asked ” distribution channel, where you are responsible for your own actions, and no facility to go crying to a CMC or the FOS at a later date. Given that this is what the Government want, maybe they could set it up as an extension of Pensionwise, going beyond guidance to execution for those who feel they do not need regulated advice and have made their decision.

  27. @Geoff – I agree with you about the need for what would effectively be a pension “clearing house” for non advised drawdown business. To some extent, it sounds like something which might mesh with NEST?

  28. @Geoff – My comment from 26th Feb, which whilst something I’d said last year light-heartedly looks set to be what we are going to need to do and the only question is where on the scale 1-6 the FOS and PI insurers will position themselves. Once we know, we can decide on what service we deliver.

    @Jane Hodges – Where will you and your firm be positioning yourself. I was going to be 1-5 transact business, but looks likely we will need to move to 1-4 or possibly even 1-3 depending on what FOS/PII say we can do and still be insured as without insurance, we cannot advise under FCA rules afterall.

    Stupid Service Client & Customer options advise (client) v order taking (customer);

    1.I advise you to do this

    2.This is one of the options I thought of, but not what I would recommend

    3.I would not recommend this, but nor would I advise against.

    4.I think you are being silly, but on your head be it.

    5. I think it a stupid idea, but I can only advise against. I will do it if you insist.

    6. You are insane, find someone else who is too if you want to do that

    The problem with Pensionwise is that it takes time to be able to get to the last one and Pensionwise will NOT be authorized to do number 6, the problem will be either they will proceed doing the wrong thing without advice, or approach an adviser who will either say their fee is insufficient to cover the risk of a complaint appearing at an infinite time in the future OR if they are stupid enough to provide an opinion for insufficient fee (I have heard advisers saying min about £600, common £1,000 for that advice) then have to charge them to tell them no 6!

  29. As pointed out to me Mr Osborne did not personally draft the legislation, but he should be aware of the unintended consequences which mean that the regulated advisory community cannot comply with the intentions of the legislation to provide freedom for all, because we ourselves are not free to do so.

    This would suggest that an amendment is required to the legislation to enable unregulated execution, which then moves to risk to the consumer. How this is policed could be the problem, but if every adviser stands firm there will be no other option. Wishful thinking on my part, there are plenty of unscrupulous advisers who would break ranks to make some easy money.

  30. Phil castle: My belief is 1-3 definite. 1-5 most reasonable for a customer. I don’t think FOS will do anything against this as long as insistent rules are followed- there has been good dialogue at objective stages, good review of options and issues, clear first recommendation, and even second and where outright insistence a clear discussion about the disadvantages. This process has been compromised before by being driven by advisors to avoid advice liability/get paid- in some instances. So I don’t think process is flawed only the way it has been abused. We start with ethics, charge for time spent before moving to implementation and therefore minimising conflicts of interest, and record every interaction- so have proof of what was discussed and what the customer understood. In the past it has been hard to disprove what was said, easy to get lost in the documentation (you cant disclose out of bad advice- but we also aren’t good about being clear when customers are insistent)- none of this needs to be the case now. There will always come a time where as an individual advisor we think the customer decision is so mad we walk away- but to have a generic policy on this doesn’t fit well what I think consumers need- which is an individual assessment and individual treatment. There is a very long process of assessing customer objectives fully and considering all options that we should be fully considering before we even get to this ‘insistent’ position and I don’t think the industry understands how this differs post budget yet. Hope that all makes sense.

  31. @Jane Hodges | 27 March 2015 11:51 am – Agreed that is pretty much where I am on this too. This is one of the reasons why we as a firm started recording client meetings in 2007 and it can show we had a grown up discussion with the client and discussed the logic of what we are recommending and what they are trying to achieve. As such we can demonstrate clearly (from the recording) what the intent of both parties was and why the action was taken. 1-5 I would have done pre RDR and I’d never have done 6, but post RDR, 4&5 are looking risky for US, which is not what I am in business for.
    I know my existing clients (KYC) so can choose whether to do 4 or 5 for them based on my experience and theirs to date, but I will to be doing any 4 and 5’s for anyone sent to me by Pensionwise. For 4 and 5’s a drawdown “clearing house” established on a similar basis to NEST may prove necessary and very soon.

  32. @Jane H – Ps, which Jane H is it you are please as there are 2 on the FS register? Where I can, I always like to know who I am in discussions with as it is useful to get an idea of where the other party has worked before and currently as context of a view is everything.

  33. Yes, 90% of special cases presented to me get approved, even if I have to think laterally where the decision is marginal or outside of tolerance, and class the client as a professional investor where appropriate, such a professional fund manager wishing to manage his own pot.There are no comebacks with FOS in those cases so I am comfortable with that, and the client has the outcome they want.

  34. @phil castle- Alexander House Financial Services- I have sent you a linkedin request.. We all have to make our own calls in this and deal with individuals- I don’t have a different view post RDR but agree that demand will outstrip supply of advice and we haven’t even started putting time and energy in to what situations are valid to ‘recommend’ to a customer an approach. At what point do we start looking at whether their objectives are valid and start providing advice- I am not sure we will even see many insistent customers if we accept the premise that they have different objectives to meet that are more important to them than getting an additional income in retirement. We may be arguing cart before the horse

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