When the UK Budget was announced in March, the excitement in the pensions world was centred on the ability to take an entire DC fund as cash and, should you so wish, buy a Lamborghini (or a few pairs of Jimmy Choos). Alongside this was the promise of free, impartial financial guidance (presumably as to whether the car or the shoes would hold better value) aka the Guidance Guarantee. Many questions on what this actually meant were left unanswered and, as usual, the worst case scenario was considered: Would employers have to pay for this advice? Would every pension plan have to appoint independent member advisers? If the guidance would only be available in a face to face meeting, was it really practical? Would this just mean a massive pay day for IFAs? We now have answers to many of these questions, via the Government’s consultation response entitled “Freedom and choice in pensions” (see our recent note) and, as they say, you just can’t please all of the people all of the time.
Employers are pleased: they will have very little obligation in relation to the guidance guarantee, and they won’t pay a penny.
Trustees are pleased: they will have additional administrative requirements, but not as extensive as predicted. They will only have to ensure they inform members of the availability of guidance, they won’t have to arrange for the member to receive it. A few lines on the Guidance Guarantee in a retirement quotation is hardly a burden.
Regulated financial service firms, however, are definitely not pleased, as they are to shoulder the cost. The reasoning behind the proposed levy to be imposed by the FCA is that it is these firms that stand to benefit from individuals with large amounts of spare cash being ‘guided’ towards investments. The reality of the benefit afforded to the financial services sector is debatable, however, and a consultation on the proposed levy (issued by the FCA at the same time as the Government response) is already the subject of heated discussion. With critical articles and comment in opposition to the proposals already in the financial press yesterday – look to the sky for fireworks.
The big winner here is Joe Bloggs, average DC member. The proposals have been brought into the 21st century with online and telephone options to be made available rather than the restrictive face to face requirement previously mooted. The guidance should be completely independent, coming from bodies such as the Money Advice Service and The Pensions Advisory Service, and it will all be free and personalised (although it will not constitute advice, in that it will not recommend any particular product). The Government has clearly given its best shot at trying to ensure the Guidance Guarantee is taken up – whether it is actually used, and whether members make appropriate choices as a result, remains to be seen.