With the new changes in pension rules leading to the increased flexibility in how pension pots can be taken at retirement, the government announced it will be offering Pension Guidance for anyone, free of charge. When this was first announced, understandably it produced an awful lot of chatter around exactly who would be delivering this guidance, in what form it would take, and who would be covering the costs. At the time of writing this there are just 20 weekends before Pension Guidance will be in practice. How will IFAs be impacted by all of this?
Although the details of exactly who and how this Pension Guidance will be delivered are not clear yet, at this stage it’s anticipated that both The Pensions Regulator (TPR) and Money Advice Service (MAS) are getting involved with the delivery of this guidance, and it’s looking like it will be a telephone service and the Citizens Advice Bureau (CAB) delivering face to face guidance.
The difference between guidance and advice is a crucial one, and one perhaps the public have not yet grasped. Guidance is effectively saying, these are all your options, you get to pick what you want to do, a lot of people in your position choose to do “x”. It’s then down to the individual to decide what action they feel is best for them.
Will it help the majority of people?
Will Pension Guidance help the average person? At this stage I really don’t know. MAS does have a place, but in this instance it will just highlight a massive advice gap for those at retirement.
The government is going through the motions with pension guidance, but I just don’t believe it will be practically useful for most people. It’s very difficult to make major financial decisions using a decision tree, especially now there is this increased flexibility in how you can take your pension pot in retirement. Additionally, guidance for a lot of people will feel irritating because they only get guidance, there’s the frustration of being told “here’s a range of options you can take” as opposed to ”this is the best route for you to take.”
On the one hand there will be a group of people who will spend a lot time doing research and understand their options at retirement. Whether pension guidance or IFAs are on offer, this is their preferred method of research and, for many, they’ll self execute as well. This group will be numerate and use the internet to do their research. The offer of pension guidance won’t affect this group.
On the other hand, the most vulnerable could easily be worse off. There is a downside to this increased flexibility of taking your pension pot at retirement, and there are going to be some people who will simply squander their funds, Pension Guidance or not. Unfortunately, it’s simply too complicated to be able to identify who the most vulnerable are and then offer them the advice they need.
How does all of this impact on IFAs?
There is now a genuine opportunity and lots of scope for advice, you just need to look with regards to tax planning, bridging retirement, and blended solutions – where an annuity might be taken to cover the essentials and the balance used in drawdown. There is much more choice now in how the funds are taken, how they’re used in the run up to retiring. A lot has changed and opened up more solutions for the client than before, giving more planning opportunities and need for advice. This can only be a good thing for IFAs.
As I mentioned before, Pension Guidance will mean people will be forced to make decisions and as a result I think a lot of people will be forced to pay for advice. If you’re well qualified to do so, then clearly there will be a tendency to offer advice. But it also highlights the need for a clear service proposition. Just because more people will be looking for at retirement advice doesn’t mean to say you’ll want to deal with all of these cases. What can you offer, for whom does your offer add value, and how will you charge for this?
Being able to deliver advice in more cost effective ways, using technology such as Skype to do face to face meetings without being physically present, could open up your opportunities to serve clients that otherwise it wouldn’t prove cost effective for. (link back to “ Increased complexity of Financial Advice, what’s causing it and how can IFAs help?”).
There is of course a theory that some people will be taking money out of pensions with the new pension changes and investing into something else. For example the Buy to Let market. This may lead to a reduction in funds under management.
On the flip side, a lot of money which would have gone into annuities will now remain invested, potentially increasing funds under management. Only time will tell what exact impact this will have.
It’s clear there are a lot of opportunities for IFAs who are prepared, and as always having the right processes and support systems in place will be key to making the most of these changes.