Pension Wise - Paying more for less
When George Osborne stood up and accidentally announced that there would be advice given free to all when they reached retirement, so that people would be educated in how to make the most of their new pension freedoms, the Treasury spin doctors leapt into action to clarify the statement. What was meant was guidance, we were told, a cheaper level than advice which would guide people through the options available but definitively not recommend anything to the individuals receiving the guidance.
This was seen to be a poor-man’s version of advice, for those who couldn’t afford what was deemed to be the exorbitant price that advisers were now charging, under RDR rules, to give personalised financial advice and planning. Whilst many in the industry doubted the value of guidance, the approach was kicked off and a levy was imposed on financial advisers to cover the cost of providing guidance to those who couldn’t afford the cost of proper, regulated advice from an Independent Financial Adviser (IFA). This seemed correct, as there are many people with small pension pots to whom the idea of paying for a number of hours of advice from an IFA –average cost £150 per hour, according to the Money Advice Service – is unpalatable.
However, the value of guidance is questionable and particularly as those with the most need of advice, the financially uneducated, are frequently those with the least money and who therefore have to plan better if they are to make the most of a smaller amount. I called this The Conundrum of Simplified Advice at the time and argued that, although it may be more expensive, vouchers for a full advice session with an IFA for every retiree would be a far better spend of taxpayers’ money.
However, the government pressed ahead with the establishment of Pension Wise, the service delivering face-to-face, telephone or Internet guidance to would-be retirees at a generic level. Lo and behold, now that the service has been up and running for nine months and it turns out that the average cost of the phone or face-to-face interview is almost £500. This is the equivalent of almost three and a half hours of a fully qualified IFA’s time, which would generally be sufficient to provide full advice for those who have smaller pension pots.
This is a shocking cost, which is being levied on the industry. The life and pension providers and IFAs now find that they are paying exorbitant amounts of money to give poorer the kind of service that they themselves would be struck off for delivering. The government spend much of their time demonising the retail financial services sector, yet cannot deliver anywhere near the same quality of service for the price of the IFAs. The ironically named Pension Wise was clearly a poor idea and if the Minister is prepared to bring her experience to bear on the Treasury, she would insist on a complete re-think and move towards a solution that tapped into the expertise of the IFA sector, rather than just making them pay the cost.
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