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Paying the price: Govt urged to scrap mandatory pension freedoms advice


Advisers are seeking to price themselves out of the market for pension freedoms customers as calls to scrap the Government’s advice requirements grow.

Advice firms are raising their fees for pension freedom customers by as much as 50 per cent to price in the risk of potential future complaints if customers run out of money in retirement.

But many warn this could create the damaging impression the profession is trying to “cash in” on the reforms. And the growing tensions between consumers and advisers are leading to increasingly loud calls for  the Government’s advice requirements to be scrapped altogether.

Risk factor

Almary Green managing director Carl Lamb says the Norwich-based firm has increased its minimum fee from £750 to £1,500 for pension freedom customers, and to £1,000 for all other customers.

He says: “We have tried to price ourselves out of the market, certainly at the lower end, because we have to factor in the risks. When these people run out of money, who are they going to blame?

“We will not process requests where clients wish to go against our advice because we are chartered financial planners, not order takers.

“There could be a future change of legislation or claims from those who end up falling on the state in retirement. We are effectively factoring in a professional indemnity insurance risk.”

SimplyBiz says a small number of its member firms are looking to increase hourly fees for advice on accessing pension benefits where they feel a negative recommendation is likely.

SimplyBiz pensions technical adviser Helen Shepherd says: “This is in order to drive the client away as advisers are very concerned about the risks these cases present to their business. Despite the FCA’s recent factsheet on insistent clients, advisers still feel they have insufficient guidance from the regulator and the Financial Ombudsman Service.”

Suffolk-based advice firm Page Russell says it is not taking on pension freedoms business from new clients.

Director Tim Page says: “The reason for that is simple: risk. Today we are the lovely person who has helped the client access their money but a few years down the line we will be the money-grabbing adviser who conned them out of their hard-earned pension.

“The cost to our business of def-ending a claim in terms of time will run to many hundreds if not thousands of pounds. Pricing risk into fees makes sense, but there is no fee I can charge that will be worth it.”

Apfa director general Chris Hannant says most of the trade body’s members are unwilling to engage with new pension freedom customers. He says: “If a client comes along and says ‘I don’t give a monkey’s what you say, I know what I want to do’, they are not very attractive as a prospective client.

“A lot of advisers have full client books and they don’t need the headache of someone like that. They want to develop long-term relationships and sustainable businesses. But I am sure consumers who genuinely want to work with advisers and explore their retirement options will have a very different reaction.”

Many argue that to increase fees for pension freedom customers is unfair.

Yellowtail Financial Planning managing director Dennis Hall says: “ If you don’t want to deal with a customer than you have to be honest rather than increasing your fees.

“What if they say yes to the higher price? The adviser will have to carry out business they do not want to, and the customer is overpaying.”

Penguin Wealth certified financial planner Craig Palfrey says raising prices in this way is “ridiculous”.

He says: “We have not increased our fees and cannot see any justification for any firm to do so. Such firms should look at how to properly offer the service and put in place controls rather than phantom fees.”

Personal Finance Society chief executive Keith Richards warns the approach could be damaging to the profession.

He says: “More and more advisers are identifying the potential risk and are stating they will not enter into discussion with any new consumer approaching them with the principal objective of transferring a DB pension. Over-pricing a service is understandable rather than flatly saying no to a prospective new client, but this is likely to exacerbate the situation and distort the view of extortionate charging or advisers trying to cash-in.”

Scrapping advice?

The Government has mandated that savers with safeguarded benefits worth more than £30,000 get regulated advice before taking their pot as cash.

But in recent weeks national newspapers have slammed pension providers for blocking savers from accessing the pension freedoms, with “expensive” advice costing up to £1,000 listed as one of the barriers.

Last week, Money Marketing reported providers are interpreting the rules in different ways, and on Friday insurers argued the advice requirement for guaranteed annuity rates should be dropped.

And now the PFS says the requirement to take advice should be ditched for all safeguarded benefits and replaced with a “strong recommendation” for advice.

Richards says: “Mandating regulated advice is a key risk mitigation solution of reforms but this is already impacting on both the public and advisers. Forcing the public to take and pay for professional advice when they don’t want it is a contradiction of the pension freedoms and will unfairly impact on the public’s view of advisers as depicted in recent national media reports.

“If changes to regulatory process and liability are not going to be updated in line with the reforms, then the mandating of advice must be removed and replaced with a ‘strong recommendation’, ensuring that only those consumers who feel they would gain value from it would proceed.”

The Association of British Insurers has written to Chancellor George Osborne and FCA chief executive Martin Wheatley to call for the Pension Wise guidance service to be extended to give guidance to those with GARs.

The letter also calls on the regulator to specify the products and circumstances where advice should be taken. It says: “The FCA has in the past hinted that advice should be taken in regard to some products – in particular, drawdown and UFPLS payments.”

Royal London backed the trade body in a letter to pensions minister Ros Altmann.

Royal London pensions specialist Fiona Tait says: “The Government failed to anticipate the extent of pent-up customer demand to access their ‘own money’.

“Pension Wise was set up specifically to provide guidance for everyone eligible for the pension freedoms. It is only right Pension Wise should be the first port of call for customers, including those with guaranteed annuities.

“Providers should be able to accept customer requests for pensions encashment if they can prove they have been through the Pension Wise process and understand the implications of giving up guarantees.”

But others argue guidance would be insufficient to ensure those with GARs understand what they are giving up.

Rowley Turton director Scott Gallacher says: “Most people don’t realise if their policy has a GAR as it is generally buried in the small print, let alone realise how valuable it can be. In many cases a GAR can double the income your pension provides in retirement. Even on a £30,000 pension pot the GAR might give you an income of £3,000 a year rather than £1,500 on the open market.”

Gallacher argues insurers have a potential conflict of interest and are not best placed to be lobbying on the issue. He says: “Giving up a GAR could mean the insurer avoids paying tens of thousands of pounds in benefits. So who gains the most from the client not having to take advice?”

Hall adds: “The customer needs someone to actually do the calculation for them in order to understand what they would be giving up in leaving a GAR, but I doubt guidance would go that far. All guidance does is set out the options for people so it would not be specific enough.”

Knee-jerk reaction

Others warn against removing consumer protections in a “knee-jerk reaction” to press criticism.

Pensions Institute director David Blake says: “The issues around advice are another illustration of the lack of preparedness for the introduction of the pension reforms.

“It will be one of many knee-jerk reactions to press criticisms. My biggest concern will be if advice is scrapped because it is seen as standing in the way of people getting their money.”

But adviser bodies say a more workable solution is urgently needed. Hannant says: “Safeguarded benefits are very valuable and there needs to be some form of protection in place. The advice requirements were put in place as a barrier to stop people rushing headlong into making a stupid decision. That is the right intention but we need something that achieves that aim more effectively than the clunky system we have at the moment.”

Richards adds: “No one wants to see consumers stranded. The public needs protecting from risks as far as possible. At the same time, advisers need assurances they are not carrying the unreasonable liability of ‘insistent’ poor decisions and subsequent regulatory reviews will not hold them to account when a consumer’s funds become exhausted or other poor outcomes materialise.”

Head-to-head: Should advice for GARs be scrapped?



I understand the frustration of being told that you cannot access your pension as you’d like to. I see it feels even worse if you are told you need to pay for advice before you can either move your pension or buy a new one.

But the proposal that people with guaranteed annuity rate contracts should be able to move their pension without advice provided they have had guidance from Pension Wise isn’t the answer.

It is nonsense to say that a pension policy with a GAR is less complex than a defined benefit pension scheme where seeking advice is generally accepted as a good thing.

It would be far better to explain the merits of advice and not to position it as an expensive inconvenience.

People with a GAR probably don’t realise they have one. They almost certainly don’t know its terms and conditions nor how valuable it is.

At least the media have drummed home just how valuable a final salary pension is.

Also, a final salary pension pays out on transfer a sum that has some measure of “fair value”. I’ve yet to see a GAR that does that.

You could find a policy which the insurer says is worth £18,000 but actually provides £2,000 of income for life – which costs £36,000 to buy on the open market.

A proposal that sees insurers paying out say £30,000 instead of £18,000 would provide money for advice and some element of fair value whatever the client’s decision.

As it stands, it’s hard to avoid the conclusion that this proposal would allow a lot of people to lose an awful lot of money which would help prop up with profit funds or shareholder dividends.

Even worse, the impartial Pension Wise would be the fall guy.

Alan Higham is retirement director at Fidelity



It is clear that under the current pension freedom rules the market is failing certain customers whose pension carries a valuable guaranteed annuity option. Such options are often exercisable at annuity rates well above the current market rate.

Early evidence suggests that customers are finding it hard to access advisers willing to provide the advice the Government has mandated due to understandable fears over the future liabilities arising from insistent customers.

Customers, often unaccustomed to the value of financial advice, are objecting to paying £1,000 to £2,000 for advice on a £30,000 pension pot.

With hysterical media accusations of a conspiracy to deny customers their pension freedoms, customers are too often dismissing these valuable options and we’re concerned that GAR take up rates will fall in the future.

Royal London and the ABI are calling for a fresh approach which utilises the free and independent Pension Wise service to provide compulsory guidance to customers on the value of a GAR before they decide how to proceed.

The highly experienced staff at Pension Wise could act as an effective check point, ensuring people understand the value of their GAR and do not miss out on what could be thousands of pounds in the future.

Insistent clients would know they have received expert guidance from a Government-sponsored impartial guidance service. A successful service could be extended to customers with smaller GAR pension pots in due course.

Conspiracy theorists scent a self-interested proposal by insurance companies to eradicate these “costly guarantees” for the benefit of shareholders.

They ignore that many GARs, but not all, sit in with-profit funds of a mutual, where the reserves supporting the liabilities belong to the policyholders.

The objective of our proposal is to increase take up rates of these valuable options and ensure their benefit is not lost.

Fiona Tait is pensions specialist at Royal London

Adviser views

Justin King, chartered financial planner, MFP Wealth Management

You cannot force advisers to take on business they don’t want. We are all in business and we should be able to charge what we feel is right, particularly now the RDR has disassociated fees from products.

Philip Milton, managing director, Philip J Milton & Company

Guaranteed annuity rates could be covered by providers or by Pension Wise. People with these benefits need to be asked the question ‘do you understand what you are giving up?’ You can do that without straying into advice.



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There are 26 comments at the moment, we would love to hear your opinion too.

  1. “But in recent weeks national newspapers have slammed pension providers for blocking savers from accessing the pension freedoms, with “expensive” advice costing up to £1,000 listed as one of the barriers.”

    And in five to ten years time these same newspapers will be slamming the industry for allowing people to blow their pension pots without taking advice.

    Please don’t let policy be driven by newspapers who have extolled the virtues of so many things in the past and when the proverbial has hit the fan have hidden behind ‘we don’t give advice’.

  2. I can’t believe some firms are raising fee’s to drive people away. There are some real good reasons why people want to access their pension pot & a discussion must be had. Either that, or refuse to be involved in pension transfers & restrict the advice offered.

  3. If you don’t have a spouse but have children, surely you should be able to transfer out of a DB scheme into a SIPP without paying £1000’s to an adviser? I just want to take my 25% tax free lump sum to pay off my mortgage and then leave the rest invested for the time being, safe in the knowledge that If I die my daughters will benefit from a good inheritance.

    • Scottish Widows offer an ‘execution only’ transfer into their Stakeholder. Contact their Direct Sales team.

    • However Martin, you are losing valuable defined benefits and need to understand the value of them specifically to you. When we consider how many people have transferred out of defined benefit schemes in the past and have then been compensated because they didn’t get the right advice, is it honestly surprising that the industry is wary around such areas?

      I would also observe that unless you are a pension expert yourself, you almost certainly do not understand the implications to yourself beyond the “headlines”. As part of my job, I teach technical pensions and planning and see how little most people understand the subject first hand. Sorry if this comes across at all patronising (that’s not the way its meant). It’s simply that whilst things may appear simple, when it comes to pensions they usually aren’t.

  4. William Burrows 25th June 2015 at 9:25 am

    There has to be a smarter to deal with this – We are talking about people’s long term security and income needs so it is important to get this right

  5. As stated by the likes of Alan Higham and Henry Tapper, GARs should be valued by the companies by reference to the fund required to purchase that equivalent level of annuity – i.e. raise the transfer value to reflect the guarantee. Unpalatable of course, but at least in this way there will be limited prospect of consumer detriment or adviser culpability.

  6. “Govt. urged…”
    By whom? The National Press? That great depository of financial expertise. Even the doyen of financial publications – the FT – is dying on its feet. If they can’t manage themselves why do people tale any notice of the dubious financial advice they spew out to others.
    Over the years I and many others have been regularly called and e-mailed by the press and their freelance journalists for comments. It soon becomes very apparent that they don’t have the first clue of the topic on which they are writing and relying on us to provide some accurate technical input.
    When we see it published more often than not it isn’t even a shadow of what we have said. It is after all journalism and not financial advice and journalism as we well know has to pander to the lowest common denominator and feed the public what it feels comfortable with and what it wants to hear.

    Perhaps our national dailies should confine themselves on detailed reports on last night’s East Enders and leave matters on which they have scant comprehension to the informed technical trade press.

  7. jonathan gamlin 25th June 2015 at 9:52 am

    All of us who signed up to the MAS website for investors wanting to consider regulated advice had to state their perimeters for giving that advice , eg their fees and how much the clients had to have invested to access our services, surely we are not suggesting we hadn’t costed our time and the amount of work correctly before we started this process!.

    We know if we can give a free hour discussion and we know how much we charge our customers for our advice normally , why should this be seen as an additional cash cow to inflate our fees.

    If you don’t want to deal with these people that is fine, however we should have confidence that we can give sound financial advice to retirees, they might not like what we have to say and they may be insistent, when we should walk away. However if you stick to your principles and have advised them at the start during the free hour that there would be costs investigating the options, then as long as theses are reasonable and agreed then we should be pleased that we could help these people and not make money in an attempt to drive them away.

  8. Final Salary pensions pay out on transfer a sum that has some measure of “fair” value?

    If Final Salary schemes paid out a transfer value that truley represented their value, there would n’t be such outcry / concern about people transferring out of them!

    Similarly, have you seen the commutation rates that many Final Salary Schemes apply? I would say these offer similar value to GAR transfer values.

  9. The practical implementation of pension freedoms is caught in a clear tension between the idea espoused by Government ministers that people who been sensible enough to save into a pension will make good choices with their money and the patronising culture of over-regulation and risk mitigation forced on the industry over many years. This is undergirded by the premise if anything goes wrong it is never the client’s fault and providers and advisers will pick up the blame and the tab. This tension has to go. Mandatory advice should be scrapped go and caveat emptor once more should apply.

  10. With pension freedoms comes pension responsibility. Advisers who are hiking fees when pension freedoms come knocking at their door are behaving with total contempt to their potential clients and should be sanctioned accordingly. It is all very well to state they are worried about the long term consequences of doing this type of work, that shows to me a total lack of understanding of their client’s financial position and working with skill and expertise to give best advice on how to achieve their goals. Shame on you.
    Living in the past, thinking that an annuity, no matter how it is obtained, is the best option for a client, makes a mockery of the new pension freedoms and shows their lack of skill in this planning area. It seems the threat of the FOS and FCA that if not done with proper skill, sanctions will be applied shows more training, not exam passing is required. There is nothing to be feared as long as the issues are documented, client responses shown and eventual course of agreed action is fully shown. Some clients may initially to take an inappropriate course of action, but it is advisers job to educate the client and show just how damaging this action could be to long term financial stability. Roughly 50% of my clients fail to realize that their pension payments attract tax relief at source, that is the level of ignorance out there.
    Please do not act in such an ignorant manner.

  11. peter mulholland 25th June 2015 at 2:19 pm

    This article attempts to
    Shift the focus onto GAR
    Everyone has to pay 2000 fee just to see whether we have GAR in the small print!
    And how many pensions have GAR as a percentage of pensions – very few . It will be seen for what it is – shifting to focus onto concerns for people with GAR when there are very few whilst lining pockets for fees on small pots lots less than 100k for all who want access.
    It won’t go down well and those attempting to use this as a reason won’t look good either.

  12. peter mulholland 25th June 2015 at 2:30 pm

    I don’t need a licensed UK advisor to read small print in my pension and charge me 2000 for the privalidge. I already know GAR is not there so I will be mighty upset if I have to find an ifa then go through all this waste of time and then pay 2-3k for some waste of time report.

    It’s all box ticking rubbish and leeching from my pension pot and please do not tell me it is for my own good !!! For years my pension has been bled by one fee or another – for my own good and for once I would like it to stop and please let me have my money just for a change.

    It’s common sense stuff and those who try to defend their position wanting to charge fees on this because of GAR are going to be slammed by the press and public and seen for what they are.

    • Absolutely spot on Peter !!

      We have as IFA’s moan and been criticised for moaning for years now, about the ridiculous amount of paperwork, navigating the 8ft tall rulebook, and regulatory cost to giving advice, when most of the time its largely unnecessary, then of course there is the point that we have our pockets emptied by way of levies, the regulator knows all this is passed on to the consumer so I do believe your point needs to be raised with the FCA (they do monitor these sites) so please (and I do mean this, just keep shouting)

      Again very well said !!

  13. @Peter Mulholland I think if you came to me I think I would be quite pleased to pay you a fee of 2-3 k not to become a client of ours!! 🙂

    What is all this nonsense about? Any consumer should be allowed to do whatever they want with their pension pot without guidance or advice (but if you want advice and all the protection and value that brings then advisers are going to charge accordingly)

    Why don’t you just accept the fact that the Government simply does not trust you with your pension pot (despite what George says) and we are talking about Government rules when it comes down to having to take guidance and advice not adviser or provider rules. Or alternatively go and moan at the Government this is down to them not the financial services sector.

  14. Trevor Goodbun 25th June 2015 at 5:13 pm

    On one hand why shouldn’t people access money because they want to, one the other hand a significant number of the people I have seen on this matter have no idea the true value of what they have already. EG a deferred DB with TV of £42,000 with a pension of £500 pa. The £500 was the pre revalued figure from over 20 years ago and included a significant amount of GMP. The same person didn’t want to access their fairly ordinary PPP because it was “gold dust”. By the way my fee for pointing out where the gold dust really was . A big fat nothing. Perhaps I am a mug but it took a few minutes to save the chap a fortune.

    Now if he still wanted to go ahead with that, that’s up to him, I ain’t doing it at any price, but by the same token don’t expect me to have to pay compensation in ten years time because someone else else has or he did it himself.

  15. peter mulholland 25th June 2015 at 6:05 pm

    No need to get shirty
    I don’t want to go to an ifa
    Here you all are again defending the we know best nanny state attitude to dig more money out of pensions which are not yours
    You have no right to insist that I must get an ifa to authorize access
    Who the f… Do you think you are !
    The arrogance of an industry that has missold and overcharged for as long as I can remember. Here we finally had a chancellor who saw we had had enough of it only to be blocked by the industry who once again take from our pots.

    • Peter, you may be “switched on” enough to sort it all out yourself, but the majority of clients are not.
      So you don’t need any help, that’s great but there has to be safeguards.

    • Gordon Sinclair 27th June 2015 at 6:26 am

      I agree there is no need to get shirty but please understand that may advisers are watching this whole debacle in horror as they know that a few years down the line the claims management companies will be knocking on their doors looking for compensation for clients who may have claimed to have been knowledgeable at the time of the transaction but state that the nasty adviser didnt advise them properly when things dont work out how they planned.

      I dont think advisers should just raise fees. They should just say no to the business.

      If I was in the pensions advice field I would steer well clear.

  16. Adrian Philips 26th June 2015 at 7:47 am

    This is a job for pension wise not IFAs.
    I don’t think I’ve ever met a customer with a GAR who didn’t know they had it and it’s value (or not) to them.
    Forcing people to pay an IFA is just wasting their money and our time. Not sure our fees are worth paying for any customer with a pot of less than 250K.
    Send them to pension wise.

    • Scott Gallacher 26th June 2015 at 8:42 pm

      In my experience we IFAs can almost always add value to those taking their pension benefits almost regardless of fund size. The great ‘existing provider’ annuity mis-buying mistakes of the general public failing to exercise their open market options is surely proof of that.

  17. to Peter Mulholland, if you don’t have a defined benefit scheme or one with guaranteed annuity rates, then there is no insistence that you need to take regulated advice before you transfer it. you can go to one of the many platforms that allow non advised transfers (HL for example). If you do have a defined benefit scheme (worth over £30K) or a guaranteed annuity then the Government has said that you MUST take regulated advice (thats not the industries fault, it was made up on the day of the budget last year alongside the rest of the pension freedoms rules by the Chancellor).

    If as you say you already know the GAR isn’t there and it isn’t a DB scheme then do some research yourself and transfer it to a provider that allows non-advised transfers. Its really not that difficult and you won’t need to pay anybody any advice fees and can spend the money to your hearts content.

    Just as a thought though, the biggest fees involved in “pension freedoms” are those that you will potentially end up paying to HMRC.

  18. peter mulholland 26th June 2015 at 10:07 pm

    Fee to HMRC?
    Possibly not

    Not when I take tax free cash and use personal annual allowance in draw down and live in a tax free country I won’t but let’s see how it pans out

  19. Hi @ Peter Mulholland. Sorry if you thought I was being “shirty” My sense of humour is a bit unusual hence the smiley face at the end of the first paragraph. Here is another one just so you can see I was meaning to be funny 🙂

    if you had read my second paragraph you would have seen I was in agreement with you. Anyone with a pension pot who doesn’t want to take advice should be perfectly entitled not to do so. If we are to believe that the Government trusts us with our pension pots then why insist on guidance or advice in any circumstances?

    With the freedom and choice in pensions comes responsibility. Some people will make great mistakes but many others are perfectly able to DIY.

    But let me reiterate my point, this is down to the Government. They are the ones insisting that certain categories of pension pot owners take advice because they don’t trust them to make the right decisions.

  20. peter mulholland 30th June 2015 at 3:37 pm

    Thanks Nick
    I just don’t see why those who are able and want to deal with things themselves are told sorry
    There are a lot of thick people and we don’t know which ones they are so you all have to pay
    It’s not right

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