“And we’re going to introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.” (Emphasis mine)
These are the words of the Chancellor George Osborne in March 2014 as he delivered his budget. At that point, the Chancellor, and indeed the Treasury, had got it right. Advice at the point of retirement is vital for the majority of people who don’t understand either financial products or longevity risk.
Since then there has been a huge amount of back-pedalling as everyone tried to move away from the word ‘advice’. The ‘A’ word is no longer to be mentioned. Instead we have shifted to the softer version – ‘guidance’.
The trouble with ‘guidance’ is that it is being defensively designed. The primary aim is to make sure that there is a get-out clause, to avoid the deliverer of this ‘guidance’ being sued at a later stage by disgruntled pensioners who have been mis-sold a product. Ultimately, it tries to shift the responsibility of the decision making, based on brochure-ware (electronic or otherwise), on to the retiree. However, if they want to make that same decision for another person, they would need to get level 4 qualifications and undergo constant CPD (continuous professional development). That can’t be right, can it?
The average person, who does not know how to find their way through the thicket that is financial services, will expect the ‘guidance’ to point them in the right direction, irrespective of who delivers it. They will regard it as advice, ignoring any warnings about its unregulated nature. In essence, they will be right to do so. Just laying out option only works when an individual has a strong knowledge of the core subject and is in a position to be able to assess the options provided. That is not true of the majority of those who will now possess pension pots, post auto-enrolment.
What prospective retirees truly need is face-to-face guidance that is specific to their circumstances. The problem here is two-fold; (a) advice (sorry, ‘guidance’) costs money and (b) the only group qualified to deliver it are the much-maligned IFA community.
The only solution that solves both these issues is the idea of some sort of voucher system that would entitle people to a full financial health-check at retirement age. This would give a number of key benefits; it would stop the faintly ridiculous attempts to provide advice without actually advising, which is where everybody is currently tying themselves into knots trying to work out how and it would ensure that everyone was given the correct advice for their own circumstances at the point in their lives when they need it most.
So what’s stopping this? Ideological purity it seems lies at the heart of taking control of this area; even though no one disputes the governments need to provide physical and mental health checks, financial checks appear to be beyond the pale. This one will even pay off as a bonus because the more the retiree can get for their earnings, the less they will ultimately rely upon the state. Ideology can be taken too far. It’s time for everyone to take a step back and work on a solution that would truly meet the needs of the retirees.
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