[Check Against Delivery]
It is a pleasure to respond to Alex Roy (Manager, Life & Pensions, FCA) on the future of advice and consumer protection in pensions. I can only echo the point of this having been a year of very significant change in pensions.
The Queen’s speech last week formally announced a bill to permit the development of Collective DC, as well as the legislation to introduce the Budget changes.
Together with the flat rate state pension, a further rise in the state pension age, the roll-out of auto-enrolment to smaller employers, price-capping auto-enrolment workplace pensions at 75 bps and a new governance framework for contract-based pensions, this adds up to a permanent revolution in pensions policy.
But for all the policy boldness, the Budget is only the beginning of the main job of enabling a new retirement landscape to develop.
Let me start by talking about the Guidance Guarantee announced in the Budget, before discussing some of the wider issues.
The Budget, and in particular the Guidance Guarantee has already generated many column inches and even more tweets.
But whilst the direction of travel was clear, I think it’s fair to say we were left with as many questions as answers by the Treasury’s consultation document.
It is interesting that every time you speak to someone about the guidance, they have a subtly different idea what it actually is. So our first task has been to get as clear as possible about what the guidance guarantee actually is.
We have worked very intensively with KPMG, with stakeholders and with our members to help develop answers to the key questions, including how the Guidance Guarantee should be designed, how it should be delivered, who could deliver it, the possible cost and funding models. We will publish this work tomorrow in time for the Treasury’s deadline, so I won’t go into all the details here.
But I’d like to draw out the key points from our proposals.
Firstly, the ground the Guidance Guarantee should cover.
We strongly believe that it needs to be broad. Guidance on pension options alone would fail to take into account people’s wider needs. People may want to continue working, have health issues to consider, or dependants. Paying off debt could also be a consideration for many. And taking your entire pot could have implications for your tax position – so tax should also be covered by the Guidance Guarantee.
However, the Guidance Guarantee can’t provide detailed answers on all of these points – it needs to be high-level and point the individual to where they can get further help, including regulated advice.
This goes further than 'information only' but is not 'regulated advice' either - it sits on a spectrum between the two. For the customer, it means they can expect the guidance they receive to be broadly tailored to their profile but not to be a bespoke fit.
Secondly, the very ambitious deadline.
The Government have less than ten months to get the Guidance Guarantee off the ground and get it tested. In our view, that means the solution to be available from next April has to be built on the existing providers of guidance in this space – the utilities, if you like: The Money Advice Service, The Pensions Advisory Service and Citizens Advice.
As I said before, it is still unclear what the scope of the Guidance Guarantee is. So principled debates about whether providers should or should not be able to deliver it strike me as somewhat fruitless.
Instead, we believe that, as the scope of the guidance guarantee is established, and the content and standards become clear, Government and FCA should continue to review the role of providers and utilities, and whether providers and others with a commercial interest can deliver the guidance guarantee themselves in a genuinely impartial way.
While scaling up the existing utilities may be the most pragmatic route, this is still far from easy and will require a huge amount of willpower, expertise, project management skill and industry help just to make that a reality.
Which brings me to my third point.
The Treasury consultation closes tomorrow. To get the Guidance Guarantee up and running in time for next April, a number of key decisions need to be taken very rapidly and before the summer so that all parties can start preparing. This is a major undertaking – our central case estimate is that 200,000 people will take up the Guidance Guarantee in the steady state.
And the Guidance Guarantee having a good start is essential – the worst possible outcome is people saying next April it’s not worth it.
So to make sure that customers get the help they need next April, we need Government to set out a project management framework and a roadmap before the summer.
In building the delivery framework for the Guidance Guarantee, we also need to guard against fraudsters. The FCA have already warned of fraudsters cold calling people purporting to provide the Government’s Guidance Guarantee – we will need the regulator to act swiftly to ensure people are not conned into unsuitable investments or lose their money to fraudsters. Protecting consumers against this activity is to me a key success indicator for the Guidance Guarantee.
So much for the Guidance Guarantee. But it is important not to lose sight of the wider landscape - the Guidance Guarantee is not the magic wand to fix all the policy challenges an ageing society brings.
The Budget opens up huge flexibility for people’s retirement choices. Many more might want to take regulated advice, to receive a personalised recommendation for their individual circumstances. So we need a regulatory framework that enables cheaper advice and it is encouraging to hear that the FCA’s forthcoming paper will clarify the advice boundary.
Also, we need clarity on the new tax framework – we can’t have radical simplification that then turns into lots of detailed technical rules constraining the very freedoms the Budget wanted to create. This will be an important focus for us over the next few weeks.
Finally, pension policy feels at the moment a bit like dodgems at a fairground: lots of drivers in a crowded space driving fast and in a largely un-coordinated fashion.
Two examples will suffice – the most striking is perhaps the proposed Pension Bill on collective DC. This is based on the idea that collectivisation achieves better results in pensions – but it goes fundamentally against the spirit of individual choice and freedom in the Budget.
Less eye-catching is the lack of co-ordination between the definition of member-borne charges in the DWP’s Command Paper and the Guidance Guarantee. This list of allowable charges currently does not include the Guidance Guarantee yet simultaneously there is talk about the Guidance Guarantee being accommodated in the Charge Cap.
So I would like to end with a plea for “responsible driving” by regulators and Government to ensure pension policy is joined up to the maximum extent possible.