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PFS urges Govt to ditch pension freedoms advice requirements


The Personal Finance Society is calling on the Government to scrap the requirement for those with safeguarded benefits to take advice before accessing the pension freedoms.

PFS chief executive Keith Richards says forcing the public to pay for advice they do not want is damaging consumers’ perception of advisers. He is calling for the requirement to be ditched unless regulatory changes are made.

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 insurers argued the advice requirement for guaranteed annuity rates should be dropped.

Now the PFS says the requirement to take advice should be replaced with a “strong recommendation” for advice.

Richards says: “Mandating regulated advice is a key risk mitigation solution of the reforms but is already impacting on both the public and advisers.

“Forcing the public to pay for professional advice when they don’t want it is a contradiction of 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 Government reforms, then the mandating of advice must be removed and replaced with a ‘strong recommendation’, ensuring that only those consumers who feel they would value from it would proceed.”

Richards says growing numbers of advisers are deciding not to engage with consumers who wish to transfer out of a defined benefit scheme because of liability risks, and this is impacting on the availability of advice to meet demand.

He adds: “We are seeking agreement to introduce a clear process to protect the public’s best interests but without denying them the right of freedom or leaving the profession exposed in the future.”



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There are 21 comments at the moment, we would love to hear your opinion too.

  1. Scott Gallacher 25th June 2015 at 1:00 pm

    Could I ask whether or not the PFS consulted members such as myself on this matter.

    Giving up a GAR which could more than double the effective value of your pension pot is not something people should do without being fully aware of the consequences.

    Using the £30,000 minimum pot figure, losing a GAR cost you over £30,000 in effective value but I suspect that the general public are completely unaware of this.

    The point is not whether or not people want advice, it’s whether or not they realise that they could be making incredibly expensive mistakes without it, and the annuity mis-selling scandal is surely proof that many people don’t realise the cost of DIY action.

  2. @Scott, totally agree. I had one client enquiry last week with two Phoenix Life contracts that at age 60 would pay a GAR of 10.4% per annum. He was 58 and wanted to take the whole pot (£22,000) as a deposit for a BTL as he considered that the best way to create income in retirement. He was completely oblivious (despite having the information with him) of the tax implications on the 75% of his pot and that he would (due to his earnings) pay a marginal rate of 40%.

    Pension Freedoms are great news with flexibility beyond belief, but advice and responsibility are key in these areas because % of ‘Joe Public’ do not see beyond today and the cash they could access right now.

    My client is now considering continuing with his GAR and looking at investing more in to his GAR pension…

    Persons in the industry with responsibility such as Keith Richards should be very careful and do their research first… the long-term damage and cost of allowing uneducated pension policy holders access without having to seek qualified advice is irresponsible of Government and the Regulator. And who will pay for it in years to come…. not those who have blown their pension pots!

    I do however agree that Providers holding pension policy holders to ransom with high exit fees is not acceptable, although I have not experienced any examples of that personally and would hope that pressure/change would be implemented to prevent it continuing.

  3. Last week insurers argued the advice requirement for guaranteed annuity rates should be dropped.
    I bet they did! Just think of the cost of maintaining those GARs!

  4. David Stoddart 25th June 2015 at 1:23 pm

    I am in favour of Keith’s position as long as it does not impact on our Financial Service Compensation Levy down the line when all the providers/advisers are being sued for allowing people to proceed without advice.

  5. Charles Seymour-Cole 25th June 2015 at 1:25 pm

    The solution to this is much simpler. Stop lining up Financial advisers to be the Fall guys/gals when this all goes horribly wrong 10 years down the line. Gives us clear unambiguous rules to follow which will mean that as long as we do follow them we will not be held accountable should/when the client realises his/her mistake.

  6. One point I think should be made strongly to the Press (if they’ll listen) is that this “expensive” advice fee of £1,000 could actually be the greatest bargain of a lifetime!
    Consider a pot of £30k with a GAR provision. I’ve seen one client recently where the GAR on an annuity guaranteed for 5 years and with 50% spouse pension was 10%. The fund available was £34k. On the open market this would probably secure 50% of this income at best, so in practice the client would get back the advice fee in less than a year, and would then get this same additional income year after year. If he only lives 20 years that’s a return on investment of 2,000%, guaranteed!
    It also means that the extra income alone would be more than the lump sum less tax that he would have received if he just believed the press, shunned the “expensive” advice and cashed-in.

  7. @Scott @Greg What is your opinion though on people like myself that have no spouse but have grown up children? My DB scheme is worthless to my kids if I die and all I want is to take my 25% tax free and keep the rest in a SIPP, why should I have to pay £1000’s to allow me to do this?

    • Scott Gallacher 25th June 2015 at 1:59 pm

      Hi Martin, In scenarios like yours one option might be to consider arranging a whole of life assurance policy to provide the children’s inheritance, using the Final Salary pension to fund your lifestyle and pay that life assurance premium. Not advice just an idea!

  8. Gary Bottriell 25th June 2015 at 2:07 pm

    Just asked the PFS and CII what they think of the report and they don’t seem to care. ‘Keith’s on holiday and only he can reply. We’ll speak to him when he gets back.’

    Pressure needs to be brought on them to publicly state whether they think people leaving defined benefit schemes and other guarantees should be advised or not. If I were a trustee of a DB scheme I would be utterly delighted by this seemingly barmy requirement.

    Did the Law Society speak out against the introduction of the requirement that a lawyer must supervise an agreement to terminate an employment, when all the employee wants is the severance cheque. I think not.

  9. What would Professor Jim Gower made off Pension Freedom
    Bearing his mind one of his comments and conclusions of his 1986 report

    “strictness of the regulations, should not be greater than is needed adequately to protect investors and this, emphatically, does not mean that it should seek to achieve the impossible task of protecting fools from their own folly. All it should do is to try to prevent people being made fools of. . . One has to make a value judgment on the relative weight to be attached to market freedom and to investor protection”

    If actual read what the comment stated was regulator should stated that investor should strongly recommend that those wish to transfer should seek advice.

    If the consumer wishes not to take advice he has only himself to blame On the other hand if he does seek advice the regulation is there to protect him from been made a fool off.
    It was political interference that changed the principle of Jim Gower’s report.
    The government want pension freedom so let them take responsibility of the impossible task protecting those that do not want to take advice

  10. Hi Scott, Yes I can see the merit in that option, but I want to use the 25% lump sum to clear my mortgage. Also the proposal I have had would take over 40 years for me to achieve the transfer value I have been given. I will definitely transfer out of the scheme but just wish to find the cheapest way of doing so, I’d be happy to sign a disclaimer if such a thing was allowed.

    • Scott Gallacher 25th June 2015 at 2:40 pm

      Forgive my sceptism but 40 years to recover the transfer value offer would indicate a very generous transfer value.

      Did you factor in that the pension is most likely to rise each year due to inflation linking?

      With regards to the waiver, I don’t think any advisers really object to this idea.

      Unfortunately our experience is that, regardless of waivers, after the event people realise that they have made a mistake and then claim compensation, which ultimately we end up paying some of by way of higher regulatory levies.

      A perfect example of the above is the annuity mis-selling when argubly this was annuity mis-buying, i.e. people could have taken advice but choose not to.

      • Yes the transfer value shocked me to be honest, the scheme closed more than 10 years ago and there are probably just a couple of hundred active members, I suspect the company would be very happy to see people transfer out and save the costs of administration.

        No the 40 years doesn’t allow for inflation but neither does it allow for any growth.

        I honestly have no grievance with advisers wanting to cover their backs, I have spoken to a couple ‘off the record’, and they agree with my assessment. I have done 100’s of hours of research into this and just want to be allowed to access my funds without paying £1000’s.

    • Martin, Scottish Widows offer a ‘execution only’ transfer into their Stakeholder pension. Contact their Direct Sales team if you are interested.

  11. Keith Richards 25th June 2015 at 2:12 pm

    I appreciate and agree with many of the points made so far, and to be clear, my comments are more about protecting the public and professions best interests following the hasty introduction of pension reforms.

    Mandating regulated advice is a key risk mitigation solution of the reforms which we welcomed, although back in March we did highlight to Government the potential contradiction with the Chancellors statement and public perception that consumers were “free to do whatever they want with their pension”.

    Forcing the public to pay for professional advice when they don’t want it is a contradiction of pension freedoms and is unfairly impact on the media and public’s view of advisers as depicted in recent national media reports. We are seeking to ensure that the value of professional advice and why it is important is highlighted as a standard script by Providers, Pension Wise and Trustees to encourage rather than force.

    Additionally, if changes to regulatory process and liability are not going to be updated in line with Government reforms, which is equally what we are calling for, then the mandating of advice should be removed and replaced with a ‘strong recommendation’, ensuring that only those consumers who feel they would value from it will proceed.

    As increasingly highlighted, some consumers who are being forced to seek advice, simply want to use the advice firm as a facilitation service. The ‘insistent client’ debate and advisers views have been well aired over recent weeks which is not just about liability.

    We are seeking agreement to introduce a clear process to protect the public’s best interests but without denying them the right of freedom or at the same time leaving the profession exposed in the future. Advice is highly valuable and important for the areas highlighted, but let’s not allow it get tarnished through rushed and poorly executed reform processes.

    • Gary Bottriell 25th June 2015 at 4:49 pm


      A profession exists to protect the public and our recognition by legislators is pretty much what the battles of the last 25 years have been about, recognition as a true profession. To turn round and blow raspberries at them because we are finding that hard won responsibility uncomfortable is risible and undermines all our achievements.

      Our reservations should be discussed with the legislators in private not through the medium of trade journals who then make us look a laughing stock.

      There is no right answer to a DB to DC transfer because of all future uncertainty and any adviser who thinks either option is the right one in advance is a fool. We have a duty though to warn of the dangers and satisfy ourselves that the member understands what they are giving up and what they may gain by doing so.

      I return to the analogy of a solicitor being required to supervise a compromise agreement. He or she does not have to say whether leaving the job is a good idea or not, just to explain to the employee the rights being given up and that the employee understands. The lawyer of course has the good sense not to get conflicted by an interest in the new employment, perhaps that is the source of all angst – a simple conflict of interest.

      This is easily resolved by ensuring that those who want to advise the money coming out, should not be the adviser who informs the member on the merits of taking the transfer.

  12. @ Martin Cooke
    Your problem at the moment is that there are two regulators involved in the course of action you wish to follow…and they are not singing off the same hymn sheet!

    The Pensions Regulator, which governs the scheme out of which you wish to transfer, has issued guidance to Trustees that states they merely need to be satisfied that a member has taken advice from a suitably qualified individual (Pension Transfer Specialist) within a firm with the relevant FCA permissions, and most schemes are requesting declarations at the point a transfer is requested to confirm these details. They do not require to know what the advice is, however, or whether the member is following it, merely that advice has been given. So you can, in theory, transfer out of a scheme regardless of the advice outcome, as long as you have taken some.

    The FCA, however, (and the FOS) still seem to be of the view that for a transfer to proceed, the adviser must have recommended that it is a suitable course of action given your circumstances and objectives. Whilst revised guidance has been given in the area of “insistent clients” it is still not perfect and many advisers fear that they may still be hung out to dry in the future. In addition, most providers who would be recipients are unsure whether they can accept transfers unless an adviser has actually recommended it should proceed.

    If the FCA allowed providers to receive transfers on the same basis as TPR is allowing schemes to pay them, then at least that would be a start, and at least offer the prospect that clients could organise a transfer on their own once they have had advice; but hoping that you will be able to get around the need for advice is probably a step too far so soon after implementation.

  13. Hi Martin, your comments are valid in that it points purely in the direction of taking professional advice.

    The FOS would take a dim view of a mortgage in retirement, but if just focusing on that point and a mortgage say costing 2.5% for example and a GAR paying 10% (8% net of tax maybe…) means the income exceeds the mortgage expense; you are 5.5%, (possibly 7.5% better off if the GAR income is within personal allowance). You can check the maths for yourself, but a £30,000 interest only mortgage costs £62 per month, the GAR (on example above) produces £250 per month gross and if the only source of income its below the personal allowance so income tax free. That is £188 per month, £2,256 per year income not received had they cashed in the GAR pension and paid the mortgage off.

    I know my arse would be on the line if interest rates rose to those high rates of the early 90’s, so would be treading carefully and suggesting the client makes overpayments.

    Also agree with Scott’s comments…

  14. Matthew Lammas 25th June 2015 at 4:19 pm

    The main reason for advice in these scenarios is that generally clients do not know the value of the GAR, or indeed what one is. I recently had a client with 3 pensions all with GARs. He had already made his mind up that he was taking them all as a lump sum to fund work on his property. The provider wanted to ensure that he had the GARs explained to him, as they said they couldn’t without potentially and inadvertently providing advice. When I actually assessed the GARs, 2 of them were well below current OMO rates, and therefore he would be wise to actually take the OMO on these. The other one was double market rates and so clearly very valuable to him. I therefore explained all this in a letter not only in % terms but also monetary terms. I also explained to him that if he took the money either side of tax years, he could avoid paying higher rate tax (not initially but after a ‘special tax return’). I therefore made it very clear that I didn’t agree with his desired course of action, and that if he did insist on proceeding, the smartest way to do it. However he still proceeded with the full encashment. This led me to feel very frustrated however ultimately it is his pot of money, and I have acted in a professional manner. GARs are very good but clients fail to see the value of them, especially if they are wanting/needing a lump sum of money. A 3 course Indian meal for a fiver may represent great value, but if you don’t like curry….!!

  15. Scott Gallacher 25th June 2015 at 6:49 pm

    When discussing issues like these could I suggest we stop using solicitors as a comparison. As a quick look at the Legal Ombudsman service rules makes for interesting reading, i.e. the complainant must refer the complaint to the Legal Ombudsman no later than:
    – six years from the act/omission; or
    – three years from when the complainant should reasonably have known there was cause for complaint.

    If financial advisers had the same time bar rules that apply to solicitors, and other professionals, I suspect advisers would be willing to advise in more complex long term areas. This is because advisers would be safe in the knowledge that should things go wrong many years, or even decades, in the future, they wouldn’t be held liable.

    The potential for future complaints/compensation about DB transfers, loss of GARs, or people blowing their pension pots under ‘Pensions Freedoms’ would be significantly limited and advisers would be much more willing to accept cases where the client simply wanted to access ‘their money’.

    I’m not saying that advisers shouldn’t be liable for their advice, however using solicitors as a comparison is not particularly helpful if they have the same open ended liable for their actions.

  16. Scott Gallacher 25th June 2015 at 8:07 pm


    ‘using solicitors as a comparison is not particularly helpful if they DON’T have the same open ended LIABILITIES for their actions.’

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