23rd July 2014
If you are nearing retirement – in fact if you are just considering taking tax free cash – you about to be given a huge new range of choices when it comes to managing your pension income. You are also about to be given a new source of retirement guidance to sit alongside your existing adviser and employer communications.
The Government and the financial watchdog, the Financial Conduct Authority, has just released reams of paper outlining how pension investors will get guidance about their retirement decisions from next year.
Your pension scheme will have to alert you to the fact you can obtain such guidance from various specified sources. It won’t come from your financial adviser, or from the consultant who advises your workplace scheme.
They can provide you with communications or regulated financial advice about your options but not this officially sanctioned retirement guidance.
The two bodies which are frontrunners to provide the guidance about your retirement are the Pension Advisory Service (TPAS) and the Money Advice Service (MAS). They are mentioned in the Treasury paper just published.
Now the first body, TPAS, has always done some sterling work by giving information and telephone help on pensions, but has yet to be tested for such a wide scale project. The latter had a difficult infancy since its creation at the start of this Parliament and it has been castigated for spending too much money on marketing and advertising without necessarily demonstrating how it had helped people.
Indeed the arguments between interested Members of Parliament and MAS itself continue about whether it is fit for purpose. (and that was before we knew it was set to be given another purpose.)
So when you, as a pension scheme investor, are promised this guidance in the next six months or so, and especially if you are in the first year’s cohort to receive it, you need to make sure you are satisfied with what you receive in terms of help.
At Mindful Money, we also see a risk that many investors will get a confusing choice of options and information. This is the inevitable result of the Government and regulator deciding that the financial services industry – advisers and providers – should not provide this help, but that pension providers should direct their policyholders and members to it, and it should come from ‘unbiased’ sources.
We can understand this decision. Some pensions companies used to provide information of dreadful quality to their policyholders. They were quite content to see your pension pot converted into a annuity with their firm without properly alerting you to other options on the open market.
Some of the worst firms would not even test whether their long standing policyholders might have a chronic illness which meant they should at least have taken out an enhanced annuity. This is clearly why pension providers have not been trusted with guidance.
But the planned system leads to a difficult boundary to police between advice and guidance. The sources of help, MAS, TPAS, and perhaps Citizens Advice are untested at serving huge numbers of retirees a year. The maximum if all sought guidance would be 400,000. That could threaten an organisation’s systems if it wasn’t used to such volumes.
But taking this back to an individual level, consider this. You will be receiving guidance. Both MAS and TPAS have the word ‘advice’ or ‘advisory’ in their names but this is not regulated advice. You may be receiving regulated advice from an IFA or a restricted adviser or information and perhaps workplace presentations from a workplace consultant. You will be receiving information from your pension scheme or schemes. But all these sources of help are currently working out how to develop systems that point you to guidance but that don’t risk biasing your decisions, while TPAS and MAS will be working out their plans for meeting demand from spring next year.
Confused? Well, you may be. And that is all the more concerning because your pension choices are now much wider.
These wider pension choices are, on balance, a good thing as Mindful Money readers would no doubt agree. This guidance is an extra source of help and information, but we urge even the better informed to think long and hard about where you are being guided and advised.
Your workplace may offer communications and support about your retirement choices. You may have a fully regulated financial adviser or planner already in whom you have confidence. So maybe you should use the guidance as a sense check on whatever your plans are already.
And if you have no sources of other help, this guidance will come as a boost. Just remember those providing it haven’t done anything on this scale before, and certainly not in the face of a revolution in how people take their retirement income.