The pensions reforms announced in the Budget are radical and will fundamentally change how savers deal with the choices they face at retirement – and at the heart of the reform is a promise that every saver will be offered guidance to help them make the right choices for their circumstances. And now the debate is starting about what this actually means.
Will guidance provide general or personal help? Will it enable them to answer the question ‘what should I do next’? Who will do the guiding and what proportion of these conversations will take place face to face?
One thing is certain, we must progress quickly on defining what guidance is if we are going to build it in time for the deadline of April 2015.
If we look at the customers who will need guidance, there are many different groups: those arriving at retirement in 2015 who will be faced with new choices and those (perhaps 20 years from now) who will have benefited from automatic enrolment. There are those with small savings pots and multiple savings pots and those with a combination of assets in property and savings that could be used to fund their income in retirement.
One thing is certain though, we need to shape guidance around customer needs rather than the current rules and products. I have come up with ‘a starter for 10’ for a checklist of questions that every guidance process could cover:
- What other sources of income are available from savings (including other pension arrangements) or even equity in the home?
- Is the customer planning to remain working, and if so how much and for how long?
- Is there unsecured or mortgage debt outstanding?
- What aspirations does the customer have for future spending and do they understand what income this would require?
- Are there considerations for dependents including partners, children and parents?
- Does the customer qualify for state benefits and if so, which ones and how will eligibility be affected by other financial decisions?
- Are there any health issues that would influence decision making?
- What could the tax implications be for different decisions particularly if there are multiple sources of income
- What are the options available including cash and other products and services for using the savings built up
- Does the customer understand the implications of any decision, whether it can be changed and what impact it could have many years from today?
It is important that policy makers concentrate on the customer needs and avoid where possible adding cost and complexity to rules and products. Guidance will need to reach customers as early as possible and in a way that suits them at various points throughout their retirement to ensure they continue to be fully equipped to deal with the financial decisions ahead of them.
It’s a challenging timetable to get this done and done right but we all share the same goal - to ensure people are able to make informed choices about their retirement.