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Freedom vs protection: Providers split on need for pensions advice


Providers are caught in a “perfect storm” between consumer demands for access to pension freedoms and ensuring customers are adequately protected by advice.

Over the past week national newspapers have slammed pension providers for blocking savers from accessing the pension freedoms.

“Expensive” advice costing up to £1,000 has been listed alongside high exit charges and delays as barriers to the freedoms.

And with widespread confusion over when advice is required, experts are warning the reputation of the advice profession is being damaged.

Different approaches

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

But providers are adopting different stances on when advice is required beyond that, with only some making advice a requirement for entering income drawdown.

There are also a number of complications with the £30,000 advice requirement.

An FCA spokeswoman says the £30,000 limit applies to the benefits in any single scheme, and not the total across an individual’s schemes.

But providers say the rules are unclear.

Royal London and Standard Life both say they look at all the benefits under the same scheme when determining if the £30,000 limit has been breached. This means a customer wanting to access a pot worth £20,000 who has over £30,000 worth of safeguarded benefits in the same scheme would still need to take advice.

A spokeswoman for Standard Life says: “The rules are not very clear and there is scope for providers to take different approaches. Either the Department for Work and Pensions or FCA should provide clarity.”

A spokeswoman for Royal London adds: “There is some confusion as some customers believe the £30,000 limit applies to each pension pot they hold and are then upset when it is explained to them that they must seek advice when the smaller individual pots total £30,000 or over.”

Rule changes

Another point of contention is whether the value of the guaranteed annuity rate should be taken into account when assessing whether the scheme exceeds the £30,000 limit.

Providers say the FCA’s consultation paper on pension transfer rules, published in March, was not sufficiently clear.

In the final rules last week the FCA said: “A number of respondents asked whether providers should attempt to value the GAR for the purpose of determining whether the exemption from the advice requirement applies.

“The DWP has confirmed that, where the benefits include a GAR, the calculation of the value of the benefits must take into account the value of the GAR.”

A Standard Life spokeswoman says: “Until now we have not been including the GAR in our calculations. We are reviewing the final rules and will be making any necessary changes to our processes.

“A very small proportion of our customers have GARs – we have approximately 4,700 policies that have a GAR which equates to less than 0.25 per cent of our UK pension book.”

Phoenix, on the other hand, says it has been taking the GAR into account since April. The closed-book provider says 70 per cent of its annuities have a GAR.

A spokesman says: “If a policy has a cash-in value of less than £30,000 but with benefits worth more than that amount, the customer will be required to take advice.

“We calculate this by determining the cost on the open market to provide the level of annuity that the GAR would provide to the customer, rather than simply the cash-in value.

“Our biggest concern is that customers try to cash in a pension with a GAR without first understanding its value.”

Barnett Waddingham senior consultant Malcolm McLean says: “There is widespread confusion about the whole thing.

“For those with a GAR who have been allowed to transfer without advice but would now need advice under the new rules, there is a question over whether they have been adequately protected.”

Standard Life head of pensions strategy Jamie Jenkins says providers will have to contact those customers and make them aware that under the new rules they should have taken advice.

He says: “This will only apply to those who had a valuation of between roughly £25,000 and £30,000, which will be just a small percentage of customers.

“But providers will need to tell them that with hindsight they should have taken advice and make sure they are fully aware of the benefits of the GAR.”


Consumers are also reporting cases where they have been mistakenly told they need advice.

An Aviva customer wrote to the Guardian earlier this month to say they had been told by the provider they had to take advice to access a £20,000 pot.

An Aviva spokeswoman says the provider “misunderstood” the customer’s request and on review accepted advice was not required. The spokeswoman says the confusion arose because the customer asked to “draw down” their fund, which was mistaken as a request to enter income drawdown.

The Pensions Advisory Service chief executive Michelle Cracknell says: “There is an issue with providers communicating the advice requirements and it is not always the provider’s fault.

“In a lot of cases customers have had unrealistic expectations about how easy it was going to be to access the money, and sometimes they do not fully understand what they are being told.”

She says among the misunderstandings that consumers have reported to the TPAS helpline are those who are transferring to a new provider which will only accept business on an advised basis.

Cracknell adds: “In April we also had people calling who had a pot worth £20,000 with a GAR and were asking if they need advice. We said at the time we did not believe so, but the FCA has now clarified they may need advice.”

Negative press

Others are concerned about the negative way advice is being portrayed in the national press.

Work and Pensions Secretary Iain Duncan Smith wrote in the Telegraph at the weekend that he is ready to “name and shame” providers who are putting obstacles in the way of those wanting to access the freedoms.

McLean says: “It is absolutely wrong for the Government to start criticising providers for insisting on financial advice.

“The Government needs to make it clear that this is their requirement and it has been done in the consumer’s best interest. In many cases people will be ill-advised to give up safeguarded benefits, but you get the impression from Iain Duncan Smith that providers are doing this for the hell of it.” chief executive Karen Barrett says: “The press is flagging up this £1,000 fee for advice like it is a fee for nothing. They are not talking about what you get for that: a professional acting in your best interests to help you make the most of your money.

“The Telegraph over the weekend listed exit fees and advice among the ‘penalties’ preventing people from accessing the freedoms – but advice should not be in that list. It is not a penalty: it has been put in place by the Government and providers to protect people.”

Apfa director general Chris Hannant says he is concerned the pension freedoms are being portrayed as an “unquestioned good” that consumers are being barred from.

He says: “Defined benefits are very valuable and the message has been slightly lost that cashing in your DB benefits may not be in your best interests. Consumer personal finance journalists have not covered themselves in a great deal of glory by encouraging people to cash in their pensions.”

EY senior adviser Malcolm Kerr says: “Some consumers and newspapers are only just waking up to the fact that advice costs money. It is also very valuable but to a consumer, ‘I want to take my money’ is a very simple transaction and they cannot understand why it is complex.

“This is a great campaign for newspapers as it puts them on the side of their readers.”

Kerr adds that providers are finding it difficult to meet customers’ expectations without exposing themselves to unnecessary risk.

He says: “Providers have found themselves, through no fault of their own, in a perfect storm. You have the FCA, the Treasury, the DWP and of course consumers making a lot of noise.

“But the bottom line is that insurance companies will have different appetites for risk, and the last thing they want is someone coming back to them claiming they should have been advised not to spend all their pension.

“I can fully understand why some providers are taking the better safe than sorry approach, but at the same time consumers want access to their money and are becoming increasingly impatient.”

Expert view

Karen-Barrett-in-office-in-2014-700.jpgOur research shows that a £1,000 fee for advice would typically be for a pot of £100,000. For a pot of that size there are lots of different options and advice is really valuable.But the consumer press is flagging up this £1,000 fee for advice like it is a fee for nothing.

They are not talking about what you get for that fee: a professional acting in your best interests to help you make the most of your money.There will be a lot of people, particularly those with pots of £100,000 to £200,000, who initially went to their provider wanting access to their cash but were told they needed advice and benefited hugely from things like tax savings.

Consumers are often not aware of the tax implications, let alone things like enhanced annuities. The Telegraph over the weekend listed exit fees and advice among the ‘penalties’ preventing people from accessing the freedoms – but advice should not be in that list. It is not a penalty: it has been put in place by the Government and providers to protect people.

I do not think it is expensive: for £1,000 you get reassurance you have made the right decision, a professional who you can go back to in future, if you are buying an annuity potentially an improved rate from shopping around, tax savings and protection from making the wrong decision. That is a bargain. And what is the cost of not taking advice and rushing into a decision which may not be right for your circumstances? I would say it is more than £1,000.

Where people have to take advice, we should be explaining to them that they are in the group of people the Government has decided need to take advice, and yes there is a fee but overall you should be better off as a result.

It is not right to say advice is expensive without talking about the value. Advisers need to be out there in the press talking about what they have done for their clients, and will be doing our best to promote that message.

Karen Barrett is chief executive of

Where providers stand on customers taking advice

All providers are required by the Government to mandate advice for schemes with safeguarded benefits worth more than £30,000.

Aviva: Requires customers to take advice where they are transferring into an income drawdown product, and where transferring to Aviva’s adviser platform. Has valued the GAR when testing against the £30,000 advice requirement since April. Treats each GAR policy separately when testing against the advice requirement.

Friends Life: Until now has not included the GAR when testing against the £30,000 advice requirement. Treats pensions as the same pot where they are under the same scheme rules, and separately where they are not.

Phoenix Life: Since April, the closed book provider has taken the GAR into account when valuing pension pots.

Standard Life: Benefits under the same scheme are considered together when testing against the advice requirement. Until now has not taken the GAR into account when valuing policies, and says it is currently reviewing the new rules.

Zurich: Those using Zurich’s pension platform, which is an intermediated business, will need advice before accessing their money. Says it is reviewing its calculation approach following the FCA rules on GARs.

Royal London: Requires customers to take advice when accessing any safeguarded benefits where their total safeguarded benefits under the scheme are worth £30,000. Since April has not taken the value of the GAR into account but is currently reviewing its approach.

Old Mutual Wealth: All new customers opening a pension account with Old Mutual must take advice. Customers transferring between Old Mutual products are not required to take advice.

Canada Life: Since April has not taken the GAR into account when valuing customers’ pots. Is in the process of revising its policy to include this.

Prudential: Those going into income drawdown must take advice. Says it is reviewing its calculation approach following the FCA rules on GARs.

Adviser view

Chris Daems, director, Cervello Financial Planning

Currently there seems to be a focus on the expense of advice without fair focus on its value. Working with a financial planner can help individuals who want to use the freedoms to avoid expensive mistakes, have greater clarity on the most appropriate approach and plan appropriately for their financial futures.


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Rather than ‘naming and shaming’ per se, what should happen is that provider be named whilst being given the right to reply.

    The majority of pensions (specifically modern pensions) have no exit penalties and most advice fees are transparent. I’m only aware of St James Place that still impose exit penalties for advice costs but that may now have changed?

    Older pensions may have contractual penalties that were agreed on by the client at the point of sale.

    The Mirror today has a front page article ( referencing a £14,000 penalty ‘to access the persons own money’ but there was no context – was this a 0.1% cost on a £1.4m pot or a 10% penalty on a £140,000 pot? Perhaps it was a fixed fee – who knows – the article is broadly meaningless other than to foster a culture of ‘rip off pensions’.

    On the other hand, the media are also covering liberation fraud, UCIS etc etc….. holding out as examples people who have lost their lifetime savings because they acted on a sales pitch.

    Clearly they need to sell papers to stay in business but they perhaps need to make an editorial decision which path they want to go down given that all they seem to do is make everyone feel pessimistic and focus on cost rather than value.

    Ultimately, if the regulation is right (particularly concerning disclosure of regulation and advice) and it’s enforced then many of these issues should be tackled by market forces but I do feel that it’s important for context to be used.

  2. Douglas Baillie 18th June 2015 at 9:53 am

    Advisers are bound by a plethora of rules regarding the provision of regulated advice, and pension advice is an added level of complexity, often requiring specialisation such as ‘pension transfer specialt’ permissions.
    Quite frankly once an adviser complies with COBS and MIFID it doesn’t really matter if the investor has £31,000 in their pension or £101,000, the work, and therefore the cost of the advice is more or less the same.
    I think that the adviser community has not done well in communicating to investors exactly what full FCA rules compliance actually entails.

  3. Is this not where trade bodies both old and new should be shouting from the rooftops about the value of advice, the benefits of getting it and letting the whole world know that large parts of the costs are due to FCA, FOS, FSCS, MAS etc along with no long stop, ever increasing PI and of course the rampant claims culture in this country?

    I don’t mean telling me and the readers of MM or NMA but actually the national press, the politicians, the public. It’s no good writing polite letters to the FCA, they don’t care what we think!

    Ultimately the only way to win any argument is to convince the end user of your worth. That’s the general public. We also need to understand that however cruel it may sound a large swathe of the general public are stupidly ignorant and will always remain that way.

    The other problem is that this is also an opportunity for the whole profession to stick together and allied with the ABI to say NO!! We don’t facilitate, and we don’t assist with stupid decisions until there is absolute clarity and certainty about rules and potential future liabilities. Of course we know this is doomed to fail and there are still too many in the business who would stab their own grandmothers in the back to make a quick buck.

  4. John Hutton-Attenborough 18th June 2015 at 10:19 am

    I am reminded of that scene in the Marathan Man (Dustin Hoffman/ Laurence Olivier) when Dustin is sitting in the dentists chair being drilled by Olivier and being asked “Is it safe?” (It is on Youtube but not for the squeamish!)
    For the time being I think I will just avoid the toothache altogether!

  5. £1000 ? Are you joking ! I wish !

  6. You know that there are serious problems if the providers don’t even know the rules.

    • Douglas Baillie 18th June 2015 at 3:48 pm

      The real problem is that the FCA don’t even know how to consistently interpret and apply their own rules!
      Many firms have sought rules clarification from the FCA on the basis that clear and unambiguous rules are in everyone’s interests and when that happene they will be correctly applied by advisers and the providers.
      I think that ABI came out recently and suggested that our industry was being “left to experiment with rules”, knowing that the FCA and the FOS would use retrospection and retro-activity to evetually apply any interpretation that suited their chosen outcome.
      This is of course a disgraceful way for the regulators to behave, and they do it to preserve their own dynasty intact and free from criticism.

      • I don’t disagree Douglas. There is also the question of whether the Government gave the regulator and the industry enough time to implement the framework.

  7. Adrian Philips 18th June 2015 at 8:30 pm

    The vast majority of people will not pay £1000+ for what is in effect common sense and basic financial knowledge.

    “Consumers are often not aware of the tax implications, let alone things like enhanced annuities”

    My experience is that they are, very much aware.

    Those that are not would not pay £5 for advice anyway! Their problem.

    Those that are aware will not pay £1000+ for advice as it’s not worth it to them, I’m not saying it’s overpriced or a rip off, just not worth £1000+ to them and they don’t pay for it.

    To the HNW client, where we need to be looking, our fees are good value and the advice very much valued.

    HNW is the only future!

  8. I am finding that charging around £4000 for a report and execution of transfers over £1m is very acceptable to the clients, and no doubt cheaper than many advisers apparently.

    If I had to break down the contribution towards regulatory costs, the long term business risk to the company etc it comes to more than £1000, but nowhere near the percentage based charges that are not realistic for pots of this size.

    So we have a free market, we choose what we believe is a fair charge and the type of clients we want, the consumers decide what they want to pay and where to buy their services from. No need for newspapers or politicians to gain cheap publicity about high charges, the market will regulate itself.

  9. peter mulholland 19th June 2015 at 5:17 am

    Seems to be a bit of ducking the fee charge here for a 30000 pot. Is it 1000 fee or 3000 more like the latter. As mentioned by someone else – the procedures are the same for 30k as 200k so if you charge 3000 on a 30000 pot you are dreaming if you don’t think joe public will feel they are being ripped off because they are. It’s a problem and to say let’s concentrate on HNW what about the people who want access to a 30000 pot? The only common sense solution is an exemption agreed with fos and the client signs and signs in blood if necessary there are no come backs on the provider for not having provided advice. But I doubt that will happen there will just be a lot of hand wringing and shoulder shrugging oh dear quangos time it’s not really advisers problem and they should not be sucked into this as they have been with the insistence on advise. It’s a poison chalice and advisors are going to get a lot of bad press over this.

  10. If all providers are required by the Government to mandate advice for schemes with safeguarded benefits worth more than £30,000, then they’re doing nothing wrong if they decline to facilitate encashment or transfer to Income DrawDown without proof of advice having been taken.

    If the clients kicks up a fuss, all the provider need do is refer them to the relevant regulations by which they’re bound. It’s not us being obstructive for the sake of it, Mr Client, this is the procedure that the government has said we have to follow. If you don’t like it, complain to your local MP.

    If the client kicks up a fuss about the cost of advice, all the adviser community need do is point out the complexity and risks (for both parties) of the Pandora’s box created by these new freedoms, not to mention the now ubiquitous culture of claim for gain, often enthusiastically egged on by CMC’s with little or no regard for factual accuracy, and the tendency of the FOS to accept the claimant’s version of events over that of the adviser, however thoroughly documented. We know that the official FCA and FOS stance on disclaimers is that they’re no defence and the complainant will probably lie about them anyway. I didn’t understand what I was signing/My adviser said it was just a formality amongst all the other paperwork/My adviser just waved it under my nose without giving me a chance to read it properly, etc, etc. Complainants all too commonly conveniently forget about ethics when faced with an opportunity to screw somebody else for the consequences of their own short-sighted folly. And the CMC’s are likely to have told them that it’ll all be covered by the adviser’s PII, so they won’t actually be hurting anyone by claiming they were led or, at the very least, allowed to walk up the wrong garden path. It’s all so familiar, isn’t it?

    The conundrum remains, though, as to what level of detail providers require as to what advice has been given. Is a self declaration (a tick in a box) that advice has been taken sufficient? Even if it’s not, and a certificate from a regulated adviser is required, of what practical value is such a certificate if it doesn’t summarise what the advice has been? And what do providers do if they do insist on a summary of the advice given (signed by the person who’s given it) and the advice is not to do it? Do they go ahead anyway? If that’s the case, doesn’t it render the entire process completely pointless?

    It’s all a mighty mess.

  11. £1000 .. on £100k … you are having a laugh !!!!!!!!

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