Nic Cicutti says the Government would be “mad” to hand responsibility for delivering George Osborne’s pensions guidance guarantee to insurers.
He is right, of course – in the court of public opinion entrusting product-flogging providers with the responsibility of giving savers “impartial” help simply would not wash.
As one director at a major provider told me: “The key word here is ‘impartial’. What impartial means is that you are not involved in the outcome.
“If the Government really means impartial then providers will not be involved in this, because we are very involved in the outcome in terms of whether a person buys our annuity or drawdown or whatever.”
But if guidance is to be offered independent of providers, it raises a number of questions about how and when they should be communicating with customers.
It would be unreasonable and counter-productive to prevent pension companies from speaking to members full stop. As automatic enrolment slowly boosts engagement the communication of simple information about fund values, investment selection, charges and performance will become increasingly important and insurers and advisers are best placed to provide this.
Furthermore, the radical reforms announced in last month’s Budget mean savers will need to think about their retirement options much earlier than before – especially if they don’t want to buy an annuity.
Think, for example, about defaults – if someone is planning to strip out their entire fund at age 55 then they will need to redesign their investment strategy at age 40 at the latest. This will in turn require the insurer to provide basic information about the individual’s retirement options and the risks involved.
The problem at the moment is we have very little idea of what free, impartial, face-to-face guidance will actually look like. Is it a one-to-one conversation or will there be seminars for groups of people? And in a world where retirement is no longer a fixed point in time, when will savers be given this guidance? At their selected retirement date? Age 55? Even earlier?
The FCA has a crucial role to play here too and should take this opportunity to ensure the rules around provider communications are fit for purpose. The requirement to send out packs of information six months before a member reaches retirement, for example, will be woefully out of date come April 2015.
There is even an argument for ripping apart the current FCA guidelines – which are based on an entirely different retirement landscape – and starting with a clean slate.
But before completely hiving off the insurance industry, policymakers will need to clearly spell out the specific guidance pledge and what is to be included within it.
If the Government wants to boost engagement and knowledge of pensions it will need to ensure savers have access to simple, useful information throughout the retirement process. It will also need to clearly signpost the valuable benefits, alongside the costs, of regulated financial advice.
But in the search for true impartiality the Chancellor must not make the best the enemy of the good.
NB: Intelligent Pensions technical director David Trenner makes an excellent point on reviewing investment strategies – someone who is aged 40 in 2015 and planning to strip out their entire fund will only be able to access their entire pension from age 57 (the minimum age at which people can access their pot will rise two years in 2028).
This emphasises the value of taking independent, personalised retirement advice.
Tom Selby is deputy head of news at Money Marketing