A new world of financial advice in and around the workplace is beginning to take shape. After years of debate, the overhaul of the UK’s savings framework is moving into gear and it is beginning to look like change will actually happen.
Otto Thoresen’s review of generic advice will publish its preliminary findings this month and Tim Jones, the new chief executive of the Personal Accounts Delivery Authority is already getting his teeth into shaping the nation’s low-cost pensions saving scheme. What’s more, the Department for Work and Pensions is sitting down with the Pensions Advisory Service to create something for people wanting to buy an annuity that is akin to, but not called, basic advice. This will in turn feed into the PADA project for creating a non-advised environment for auto-enrolled savers.
Whether Jones, the latest son of NatWest to be given a Government role of removing the advice from savings, will fare better at the task than fellow alumnus Ron Sandler, remains to be seen.
But what all this activity does show is the way that the Government is throwing down the gauntlet to the private sector to come up with better solutions that clearly differentiate it from the low cost state-sponsored alternatives.
In the area of personal accounts it may be that the competition on cost is not as great as advisers may have at first feared. Pensions minister Mike O’Brien talks freely of a 0.5 per cent administration charge, without the cost of fund management thrown in. There are many schemes out there already operating at 0.5 per cent a year. And anecdotal evidence from several advisers I have spoken to is that many employers will shudder at the thought of having to rely on a massive administration body run by a quasi-state organisation.
But that said, it suddenly feels like that financial advice is under attack from all sides, with simplified products, websites, decision trees and telephone hotlines all attempting to taking the place of the traditional adviser.
I can’t help thinking that the entire project is not going to end up coming back to haunt the Government.
Current financial advice models do cut out most people at the moment, and there is a need to make the whole system more straightforward so that it pays advisers to access more of the workplace.
But the private sector has done a fabulous job in providing insurance and investments for the nations workers. Tampering with anything that undermines that should only be done with extreme caution. Personal accounts will not only lead to some levelling down by employers of their pension benefits. It could in turn lead to less group risk and healthcare being sold if employers ‘go state’ across the board. Employee benefits should be handled with care.