05 Aug Pensions ‘Guidance’ vs. Advice
What’s the difference between guidance and advice?
Back in April’s budget we saw the biggest shakeup of the pensions industry for years – from 6 April 2015, anyone retiring will be presented with a wealth of options around how to release their pension. 300,000 individuals a year with defined contribution pension savings will be able to access them as they wish when they turn 55 – subject to their marginal rate of tax, removing the necessity for many to purchase an annuity.
You’ll now be able to consider an array of options, from taking a lump sum on retirement (with 25% tax free and the remainder taxed at your marginal rate), drawdown, annuities etc…
More choice sounds positive – and it may well help many to maximise their income in retirement. But more choice also means more decisions, in what can often be a complex area. To support people making important decisions at retirement, the Chancellor George Osborne promised that everyone would be offered “free, impartial, face to face advice” on their retirement options.
Well, the Chancellor may have promised free advice, but the consultation document published alongside the budget actually promised ‘guidance’. And if you’re thinking this means the same thing, then I’m afraid the FCA (Financial Conduct Authority) who police the financial services industry, would very much disagree.
Financial planning ‘advice’ can only be delivered by FCA regulated, qualified advisers. Only regulated advisers are allowed to offer specific product recommendations, which must be suitable for the client. Delivery partners offering ‘guidance’ on the other hand must ’not recommend specific products, providers or financial advisers but empower consumers to find further sources of information, a product or specialist advice; for example, by referring the consumer to a directory of advisers.’
Initially it was suggested that pension providers would have to provide this guidance – however, in the interests of making sure that the guidance is independent, the government has since clarified that the guidance on offer will be provided by a range of organisations, including the Money Advice Service (MAS) and The Pensions Advisory Service (TPAS). It will be paid for by a levy on financial firms which is yet to be confirmed in detail. (Draft levy rules will be released in October 2014). Only organisations which are independent and have no conflict of interest will be allowed to deliver the guidance.
There is some concern however, that MAS and TPAS simply do not have the scale to provide guidance on this scale – the ‘face to face’ promise of the budget has already been scaled back to guidance via various channels, including online and over the phone.
And importantly, unlike regulated advice, although it has been clarified there will be a complaints procedure, it’s unclear whether this will include an element of financial compensation.
When it comes down to something as important as ensuring you have a comfortable income in later life, then not paying for independent financial advice at retirement (or preferably before), may be something of a false economy. The ‘guidance guarantee’ will not be able to replace informed, regulated financial advice.
FCA Consultation Document: http://www.fca.org.uk/static/documents/consultation-papers/cp14-11.pdf
11 Standards Guidance Partners Must Meet: http://www.professionaladviser.com/professional-adviser/feature/2356330/the-11-standards-retirement-guidance-partners-must-meet