In an open letter sent to the chancellor of the exchequer and the chief executive of the Financial Conduct Authority late last week, the Association of British Insurers (ABI) laid out an ‘action plan’ designed to make it easier for pension providers to carry out customers’ wishes without facing retrospective regulatory action.
The ABI wants the government to remove the legal requirement for savers with safeguarded benefits valued at £30,000 or more to pay an FCA-authorised adviser for financial advice.
“Clearly the ABI wants the limits scrapped because its members are worried or having difficulty complying,” said Jeremy Woodley, sales and marketing director of The Fry Group. “The main problem is it’s easy to let the client have their money today but who gets in trouble many years down the line when they have spent it?”
Woodley said Pension Wise can handle lots of information requests, but only if the clients knows to ask the right questions. “Whatever the limit is for advice – be it £30,000 or £100,000 – someone will get stuck on the wrong side,” he said.
Danny Cox, head of communications at Hargreaves Lansdown, agreed that Pension Wise needs to be improved, particularly given that only around 10% of retirees currently use the service.
“A lot of work still needs to be done to improve the quality of communication within the pension industry,” he said. “For example, the insurance industry should send retiring investors a short simple pension statement in place of the turgid and lengthy retirement packs so beloved of insurance companies. That would make any guaranteed annuity rates much clearer.”
Cox added: “As far as possible, the emphasis should be on helping individuals to make good, informed decisions for themselves and to avoid having to pay for advice unless absolutely necessary.”
Little too late
Keith Churchouse, director of Chapters Financial, was critical of the ABI’s plan. “Isn’t this all a bit bolting the barn door after the horse has bolted?” he said. “It’s a little too late to try to change the requirement for seeking advice in my opinion.”
“The pension freedoms have highlighted the need for pension advice; advice does add value and there is a cost to it,” he said.
However, Churchouse said free governmental services like Pension Wise are positive provided they help educate the public on ways to use their pension funds. “It’s very easy for financial advisers to knock these services, but this doesn’t benefit anyone.”
