This article was originally commissioned for the July 2017 edition of the Actuarial Post.
At first, the prospects for the new pensions minister didn’t look good. A government, without a working majority, and dependent upon a smaller party that was enmeshed in the intricacies of Brexit, didn’t seem to be in a position to sort out the tangled world of long-term savings and provision for the elderly. This was made even more certain by the problems that arose during the election campaign around the whole area of long-term care.
Therefore, it was a surprise when it turned out that the new pensions minister, or more correctly the parliamentary under-secretary of state, Guy Opperman has been given responsibility for a major policy change. Admittedly, he does seem to have been handed a bit of a poisoned chalice in being asked to sort out the mess that the whole financial guidance area has been allowed to drift into.
The whole problem is that guidance is an idea that was never properly thought through in the first place. Originally announced as being “free advice” by the Chancellor of the Exchequer George Osborne, it was quickly amended to being “free guidance” by the treasury in the post-budget speech spin-room. This was because the cost of providing free independent advice to all people at the point of retirement was deemed to be prohibitive. The fact that what people need is advice is beside the point, as is the fact that good advice to maximise their savings would be beneficial to the Treasury in the long run. Saving money was all that was cared about, with the result that this previously undefined ‘guidance’ made its appearance, and then the work started to define both it and the method of delivery.
It’s not clear whether the recipients are able to discern the difference between guidance and advice. Not enough research has been done into whether people are treating the guidance as if it were advice, and acting upon it accordingly, instead of just using it to help shape their own decisions.
The Pension Wise service produces guidance to be delivered by The Pension Advisory Service (TPAS), for the telephone option and the Citizens Advice Bureau (CAB) for the face-to-face option. This idea of a single approach being delivered by two separate organisations with their own history and attitude to financial products and affairs was always going to be difficult to keep coherent. Clearly, the whole area has descended into a bit of a muddle, which is why the minister has been handed the job of pulling the whole thing together by merging TPAS, Pension Wise and the Money Advice Service into a single entity by 2018 at the latest.
There are certainly benefits to come from streamlining the whole process and ensuring that the people who create the guidance then deliver it. It would seem like a good idea to take back the face-to-face option from the CAB and handle it from within the new organisation too, so that there would be a one-stop shop for the whole process.
A better idea, mooted at the time, would be to abandon the whole idea of guidance in the first place and for the new organisation to become a distributor of vouchers for a holistic financial review for everyone approaching retirement. Only proper independent advice for those nearing retirement really suffices. Many of these people do not have little understanding of the products that are available nor any real understanding of the financial issues they likely to face during retirement. It all adds up to them trying to make the most significant financial decision of their lives based on neutral information and whatever they can glean from the Internet or their family and friends.
It’s time to stop looking at the short-term costs and start looking at these issues based on the value delivered over the medium and long-term. A basic financial review from an advice expert would go a long way to making sure that people made better decisions about how to spend their retirement pots. This will save the Treasury significant amounts in the long run, as more people will end up with higher amounts to support themselves through their old age.
The minister has a golden opportunity to propose changes that move the system from the ill thought out approach to a better one that would actually start to provide real benefits to people nearing retirement. Let’s hope he has the vision and energy to push for it.