Defining the line between advice and education:
Capita Employee Benefits head of marketing and research Robin Hames
“Most employers recognise that the financial literacy of the workforce is a genuine concern, but the degree of employer engagement runs across the complete spectrum, from the fully engaged who see it as integral to their employee value proposition to those who see it as beyond their remit and potentially high risk.
“There have been two inhibiting factors or fears: the line between education and advice is still too blurred for many employers, while some are concerned about being seen to ‘endorse’ a third party or education programme in case of a future dispute.
“Some are softening their stance in respect of promoting the guidance guarantee and the core issues it seeks to tackle, due to the fact the guidance guarantee is government-led reducing the risk of potential comeback.
“But nearly all employers believe the guidance guarantee will be too little too late and that in time the combination of low DC pensions and the age discrimination legislation will be an issue. The degree to which they are prepared to proactively tackle this remains mixed.
“Most trustees have been active in informing members of the implications of the Budget 2014, but are wrestling with the issue of whether to allow members to enjoy flexible income from the scheme itself. In part this has been influenced by advisers and administrators.
“Many platforms will not be ready for April 2015. This may have influenced conversations with trustees. Some firms seem to be steering trustees towards enforcing members to transfer in order to access full freedom and flexibility.
“Our expectation is that over time most of the larger trust-based schemes and master trusts will be expected by both the regulator and members to facilitate drawdown without the need to transfer money to commonly more expensive individual retail products”.
Stopping pension scams:
Spence & Partners DC pension consultant Mike Spink
“The key issue is protecting consumers from scammers and from themselves. We all had the same sinister picture in our minds not long after the Budget: the pensions liberation fraudsters licking their lips at the thought of significant sums of money about to be unlocked and available for ‘investment’.
“We can’t stop these people completely and we can wager right now that we’ll see some bad stories appearing in the press before Q2 2015 is out. What we can do is use all of our resources – Government, agency, regulatory, all of us working for better member outcomes – to get information in front of retirees spelling out the dangers for the unwary. The simple things – check out who you’re dealing with with the FCA; if something looks too good to be true, it probably is. We often forget about the world outside of workplace pensions – retirees who don’t receive invites to employer sponsored pension presentations and don’t benefit from a fellow plan member’s views by the water-cooler.
“We have a golden opportunity here with the Guidance Guarantee: to mandate that every meeting has some form of ‘wealth warning’ included. But if we only see take-up of the guarantee at the forecast low levels, it won’t on its own be enough”.
Making drawdown work:
LV= head of retirement distribution Steve Lewis
“There is an opportunity for a new adviser/provider relationship to reduce business risk for all involved with drawdown. Orphan clients who don’t want to deal with an adviser put a huge burden on the provider. Some advisers suggest providers are not relevant, but as soon as the client dismisses their adviser, then the provider, whoever that is, is responsible. And we have to deal with the client directly no matter how much we point them in the way of advice.
“This leads to the thorny issue of what adviser fees are viable. What are decency limits? When does it become indecent? I would put this out there for debate.”
The advice gap on smaller drawdown pots:
Standard Life head of corporate strategy & propositions Jamie Jenkins
“There is little consensus about what people are likely to do. One particular concern is that people get support and information from their provider up to retirement or 55. They have the option of a guidance guarantee, which will serve a helpful purpose with respect to tax or extreme products. But if people need flexible income with say £30,000 or £40,000 for whom £1,000 may seem a lot to pay for full advice fees, I am not convinced we are looking hard enough at how that will work. Advice is really important and there is a gap.”
Qualifications for those giving guidance:
PMI technical consultant Tim Middleton
“The only way to achieve proper consistency is to require people giving guidance to get a proper qualification. This should be on a par with RDR level 4, with people subject to formal supervision by an approved body, with CPD so we can have guarantee people are properly supervised with proper standards.
“Over the longer term it has to expand beyond TPAS. It can’t employ several thousand people. So realistically it should be delivered by scheme administrators and corporate advisers can help delivering this, providing it is at arms length from their financial services businesses.”
Urgent need for product development:
Buck Consultants at Xerox head of pensions policy Kevin LeGrand
“The big issue will be the ability of providers to design products that will enable members to take advantage of the forthcoming freedoms at an acceptable cost. We know from responses from trustees that most schemes will not want to run fully flexible drawdown arrangements in-house, so they will be looking to be able to point members towards products in the marketplace. Whether they will do so through a default arrangement is still moot, but they will want to respond to inevitable member pressure to allow access to the new freedoms.
“Similarly, providers of contract-based retirement savings vehicles will be faced with a decision on how to address member pressure here. The big issue will be managing the cost. The cost of providing full flexibility will be prohibitive for all but the largest member funds, and so inevitably some restrictions will be necessary. Eventually the market can be expected to settle around a common core set of options as the norm, with some small differences around the edges to differentiate different firms’ offerings.
“The big challenge for the likely providers will be to get at least a basic product in place in time for April next year. The industry can expect to face considerable pressure from the government, trustees and members to deliver on this timetable – and considerable criticism if it fails to do so, or is perceived to have come up short.
“Scheme members will be looking for help, and we know that there is currently not a culture in the UK to pay fees for financial advice. They will be frustrated and disappointed with the outcome of their consultation under the guidance guarantee, which will do little more than provide generic explanations of the options and the issues that apply, and then signpost the member towards a source where advice is available – but at an explicit cost. It is only the financial services industry that recognises the arbitrary distinction between “guidance” and “advice”, despite the basic principles having been with us since 1988.
“This is clearly an issue for members – and potentially the state, if the outcome is widespread impoverishment of pensioners after a few years of their retirement when the money has run out, and they turn to the state for help – but possibly also for providers and former employers, who may face speculative legal claims for not having provided an appropriate level of support when decisions were taken.”
Execution-only drawdown?
MGM Advantage pensions technical director Andrew Tully:
“Many people will fall between the gaps between advice and guidance. How will they find out about all the potential risks, of taking too much money, paying too much tax or not knowing how long they will live. We are going from a system that didn’t work where people rolled over into a poor value annuity to one now where perhaps half of people will make a different sort of poor decision. I would like to see some action from the FCA – to know what they are going to do about that 50 per cent who won’t get guidance. If someone says to a provider ‘can I have my money please?’ the provider should be able to say just wait a second. They should have to ask have you any illnesses. If a customer doesn’t want to take any risk at all, what if a provider says ‘well here’s a drawdown product?’”
Managing withdrawals:
PTL managing director Richard Butcher
“In conversations with single employer DC trusts it is clear they don’t want to get into offering a pensions bank account. The process costs and the risks are just too high. Whether the trustees have an appetite or not the employer will not fund that. But what if someone wants to take five grand to pay a credit card debt but also continue to contribute?
“Most employers may get to where they allow a limited amount of drawdown, an ad hoc or occasional payment or two but they are drawing arbitrary lines. If an employee wants full flexibility, they may say you have to go somewhere else. And when people leave employment, they won’t offer limited access. They are likely to say you have to take a transfer.”