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.