The Chancellor gave savers two promises in his March Budget – that they could have complete freedom over how to access their pension savings at retirement and that they would get guidance to help them make good decisions when it came to exercising that choice.
This has completely changed the retirement landscape in the UK but with greater choice comes increased responsibility. The industry has been working flat out since the Budget announcement – firstly to help their current customers navigate these changes and secondly to rise to the challenge of devising workable ways to give guidance to every saver by next April. The Government is ultimately responsible for deciding what the guidance will cover and how it will be delivered, but the industry is working through practical ideas and solutions that will help to deliver a flagship Government policy just before a General Election.
Guidance and advice – what’s the difference anyway?
If you work in the financial services industry you probably know the difference between guidance and advice as they apply in industry jargon – but to the vast majority of people the two words mean the same thing. To an industry expert advice is something that is fully regulated by the Financial Conduct Authority and that consumers have to pay for, guidance therefore is … what exactly? That is our first challenge. Before any decisions can be made about how to deliver it we need to know what it is.
Ros Altmann has said that guidance helps people discover the questions they need to ask and advice gives them the answers. I think this is a very helpful way of looking at it. In our view the guidance every saver is offered before they have access to their pension savings should help people understand what they need to think about – do they plan to keep working? Are they in good health? Do they have family who depend on them financially? Are they entitled to any state benefits and what are the tax implications of their choices? These are just some of the questions people need to consider before they start spending their hard earned savings.
A guidance service like this will focus on making customers stop and think and show them where to go next for answers. It needs to be something people will use – we don’t want to put them off with a long, elaborate process. A 30 minute conversation will be helpful, and should not seek to replace the great help already out there through organisations like Age UK, Citizens Advice or the fully regulated personalised advice on offer.
Who delivers it and how?
This has been the big question played out in the media, with talk of industry splits over whether pension companies themselves should do the guiding or leave it to others with no existing relationship with customers. We have not reached a firm view over whether providers can deliver impartial advice yet, our modelling work is looking at a range of options. But any solution needs to pass the impartiality test. Something we can all agree on is that the guidance has to be on the side of the customer – it must be objective, sales free and neutral of commercial interest. Guidance is not about selling to customers. It has to be about helping them understand their options and where to go for further help.
We believe the impartiality of organisations like the Money Advice Service, Citizens Advice and The Pensions Advisory Service, who already operate in this space, means that there has to be an important role for them in any solution.
The Budget is a game changer for savers. Our responsibility, across the whole of the financial services industry, is to make sure the customer gets a good outcome.