We are now less than 11 months away from the new pensions world of freedom of choice for defined contribution (DC) fund decumulation. This may spread to defined benefit (DB) pensions too depending on current consultation on transferability of DB pensions.
In reality, schemes, financial advisers, providers and other players are much closer to when the new “guidance” for members will need to be devised and prepared: it will take time to create the process and the actual advice or “guidance” for April 2015 retirees starts months before. Members don’t just make decisions overnight and schemes don’t implement their decisions, transfers and annuities and choices in an instant!
We need to know the requirements sooner rather than later! At present, no-one knows who will be providing what, and how. The stark reality is that the various parties need to start creating processes very soon, and by September 2014 at the very latest if they are to be used from, say, January 2015. Even this rushed timetable ignores the fact that retirees in the meantime have additional choices if they wait until 2015 and so are impacted.
HOWEVER, we are a long way from sufficient clarity for planning. Far from it! We hear statements this week such as “by the end of the year” which is concerning. Is there awareness within the authorities of the practicalities, time need and the commercial issues involved? In the current climate, comments given in answers to questions at conferences and interviews are pounced upon and will continue be so until policy detail is clear. Short comments there and there don’t assist very much. They give no detail and it is usually unclear what is an individual view and what is a Government policy intention.
There may be need for primary legislation, but even if the legislation will take time in Parliament a clear policy and substantive policy detail needs confirming soon supported and committed to by all parts of the coalition. This would give confidence it will be the approximate final outcome after the Parliamentary process even if not all of the detail will be pleasing to everyone.
Yes: a considered sustainable robust outcome is better than a rushed inappropriate outcome, but with consultation ending in June there is little excuse for not having all answers by 31 August latest: the summer holidays do not constitute an excuse!
Now we all have to acknowledge the authorities are contending with a difficult wicket here, the issues are myriad it has to be said: the answer as to what “free face-to-face guidance” might be is not straightforward. The dilemma is acute because the need for real advice (as distinct from guidance) will increase because of the far greater choice. The cost of such advice even for “advised” annuities as now is high already due to the vital importance of the choice under the current regime. This increases from next year. The advice gap between full formal advice and “guidance” is a chasm. There will be (hopefully) choices of innovative new recipient vehicles for funds not yet on the market. Advisers will be dealing with, in effect, infinite choice for members. Retirement lifespans can be zero to 45 years with a wide standard deviation so neither being the advised nor the advisor will be easy (nor a “guide” in the case of “guidance”).
This cost of formal advice may be bearable and fine, although unwelcome, for many due to the strategic nature of retirement decisions. For others, though, the cost of formal advice will be too high in relation to the fund size: hence the idea of “guidance” was conceived. We agree with the idea behind the proposal for “guidance.” “Guidance” and or advice at retirement is a good thing that will help improve member outcomes. The issues schemes and providers will have to deal with are from clear, though. These range from the not insignificant issues of the content of guidance and the level of personnel, training, and systems required depending on what “face-to-face” turns out to mean in practice. These are not small matters and the number of retirees per annum from DC arrangements suggests training of many additional people will be needed. Even more if DB to DC transfers pre retirement remain permitted. I could suggest my own answers to these questions but this is supposed to be a reasonably short blog!
This is not to comment on the dangers and limitations of “guidance” compared to full formal financial advice. That is a separate topic. The dangers are highlighted by comments yesterday suggesting that “guidance” will be rudimentary. Indeed it may be have to be so which highlights the major issues under consideration. We can all agree that there is a need for some assistance for retirees so the task for the pensions and advisory industries and the authorities is to work together to create the best solutions we can.
Therefore, this is simply to plea to the authorities, civil servants to get their finger out very quickly after the consultation deadline, decide the answers and so govern as a government and announce the detail and say that will be that and push it through Parliament. Then everyone can get on with it. The end of the year is not soon enough! The length of Parliamentary recesses and the horse-trading of legislative scheduling should not delay the establishment of what is needed. At present it is not clear the level of urgency is understood by those in control.
When there is real evidence of the impact (as distinct from extrapolating from what happens in Australia as if the social and health protections underneath were the same!), then the new Government can review how the first 9 months in the UK have gone at the start of 2016.