Millions of people are in desperate need of advice, but solutions look thin on the ground
Last week saw the news that the BBC will restrict the over-75s’ free TV licence only to those who receive pension credit from next June. Just a few days before, it was announced chief executive of the new Money and Pensions Service John Govett had resigned three months on from its official launch.
These apparently separate events are linked by the urgent need for advice – free advice – to be available to the vast majority of the population that cannot engage a financial adviser because their fees are too high or the assets they demand are too great.
The BBC estimates that 1.5 million over-75s could be eligible for the free TV licence under the new rules, but says only 900,000 of them already get pension credit, with around 600,000 more poor enough to qualify but not claiming it.
These pensioners are already giving up an average of around £50 a week each by not claiming, saving the government more than £1.5bn a year.
Pension credit is only payable to people over 75 with an income below £200 a week if single, or £293 for a couple.
Those who would get £50 will have an income of just £117, so under the new rules, they will have to use more than a week’s money to pay for their TV licence – currently £154.50 but likely to be £158 by then.
Although the average unclaimed is £50, some get very little and may not think it worth claiming. For example, a single person with an income of £190 would get just £4.62 a week in pension credit. Indeed, the Department for Work and Pensions’ take-up figures indicate that the lower the amount foregone, the less likely an individual is to claim.
The BBC hopes its plan “to help raise the visibility of pension credit as a way of claiming a free TV licence” will succeed. The evidence suggests it will be a struggle. Genuine efforts by successive governments have all failed, with take-up actually having fallen since pension credit began in October 2003.
Financial advisers do not generally deal with people on means-tested benefits, so the most important thing for them to absorb is the fact any client over the age of 75 who currently gets a free TV licence will have to pay for it from June.
But that leaves most of the 4.6 million pensioners affected still needing advice about the new system. Who will give it?
Perhaps the now-leaderless MAPS, which is slowly absorbing three agencies – the Money Advice Service, the Pensions Advisory Service and Pension Wise – and also taking over a major debt advice function?
Its planned budget for this year is £118m and its key performance indicators include delivering a total of nearly 500,000 pensions guidance sessions and pension freedoms transactions (so delivering advice regulated advisers could be giving but, for some reason, are not).
It will also help 170,000 people directly with “money guidance”, which should, of course, include advice about pension credit, the TV licence and how they interact.
At the moment, the MAS’s generally excellent website has very clear pages about pension credit but not about the new link with the TV licence.
The number helped by MAPS will top 1.2 million when the debt advice function is added. It sounds impressive, doesn’t it?
That is until you read the recent Advice Gap report by OpenMoney and YouGov, which identifies 5.8 million people who would pay for advice but cannot afford it, and a further 19.8 million who want free advice but have not found any in the past two years. MAPS’ business plan falls short of filling even 5 per cent of that demand.Regulated advisers seem unlikely to meet much more of it.
The key factor identified in the report which put people off using them was the actual or perceived cost of doing so. If advisers state their top fee is £300 an hour – as one did on a website I looked at recently – that puts off people who do not earn this much in a week.
Even a more modest £150 or £200 an hour sounds excessive to those who would barely earn that in two days. Perhaps that is why the Yardstick Agency found 83 per cent of advisers do not mention fees on their website and only one in 20 explains them in any detail.
Besides, many potential clients will be put off before they even get to the website by the minimum wealth requirement revealed on Unbiased or AdviserBook.
A common minimum is £50,000, with some asking for 10 or even 20 times as much.
No wonder people who want to put £50 a month into a pension conclude advice is not for them.
Like the Advice Gap report itself, I do not have an easy solution.
But with advisers charging as much as lawyers, is there a case to follow them in offering some a pro bono service? That phrase has come to mean “free” but in fact means “for [the public] good”. Now that would be a label worth adding to chartered financial planner and independent, wouldn’t it?
Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s Money Box programme. You can follow him on Twitter @paullewismoney