One size fits all?

It has been just over a year since the then economic secretary Ed Balls requested Otto Thoresen review how best to deliver a national approach to generic financial advice.

The final report of Thoresen’s review was published on March 3 and brought about a cautious air, particularly among the pensions industry, after it recommended designing a national approach to deliver generic financial advice (GFA) or “money guidance” as it is now affectionately known.

In his delivering speech Thoresen described money guidance as the “guidance that people need on the money matters that shape their everyday lives”.

In theory, this is all well and good, particularly when you consider the current record-breaking debt problem this country has. But while this approach might be successful in areas such as debt or insurance products, can such an all-encompassing directive be used when addressing the quibbles affiliated with annuities and retirement income?

While welcoming the general principles of the Thoresen Review, Ros Altmann is quick to air concern saying the proposals are “fraught with danger”. Altmann believes any generic advice system needs to take account of specific differences in risk attitudes and understanding among different groups when it comes to pensions.

A better approach towards “our ludicrously complex pension system”, Altmann suggests, would be using the Thoresen pilot scheme to focus on the issue of annuity advice to ensure people understand the issues before they buy.

She adds: “Every year hundreds of thousands of people are not benefiting from the open market option and end up in the wrong annuity at a poor rate. Those closest to retirement need help immediately and it would be an ideal way to start such financial prototypes.”

Punter Southall consultant Gavin Banks takes a similar stance. He believes money guidance as a concept is fine, but when it comes to the complex world of pensions the broad-knit approach just doesn’t cut it.

Banks says: “At a basic level there is no real issue: it is a good idea. But when you dig a little bit deeper you begin to see a few problems.

“There are a vast number of people in this country who don’t have a great comprehension of English, let alone pensions.
“The way we tend to look at member communications in terms of pensions is that it is important to target communication because different companies have very different levels of understanding and very different needs.

“The wide-reaching blanket approach with pensions – which are still far too complicated – will not necessarily work, I think something bespoke rather than a one-size-fits-all approach needs to be looked into.”

In the report Thoresen refers to money guidance as being of particular importance to the success of personal accounts. However, as Altmann points out, “there are huge risks involved in automatically enrolling people into a system of personal accounts without tailored financial education”.

Banks concurs: “This is a bit of a concern when you consider personal accounts are going to be complex and whether or not they are right for each individual is going to be a difficult decision. I am not entirely sure impartial generic advice, or money guidance, is the way to make personal accounts succeed.

“Whitewashing the issue with a huge brush is a dangerous step to take.”

Thoresen also proposes a “multi-channel” form of delivering the financial advice, utilising the web, telephone and face-to-face communication. As a vehicle for this advice, the workplace is the natural choice – after all, it is where most pension schemes are established.

In a recent online poll conducted by the National Association of Pension Funds and taken by members of the DC PensionsConnection service, a convincing 87pc of DC experts believed that employees look to their employer to help them understand how much to save for retirement.

This view is certainly indicative of the NAPF’s larger stance on the Thoresen Review.

NAPF chief executive Joanne Segars says: “We are particularly heartened the workplace is seen as a key part of the proposed new service. The NAPF’s experience through its PensionsForce service has shown that face-to-face meetings are a popular and effective means of communicating financial issues that can prompt people into action.”

Other financial bodies have warmly received the final report.

Association of British Insurers director general Stephen Haddrill comments: “There is strong evidence to show that people in all income groups would make better use of their money if they had improved access to generic financial information and advice.”

Similarly, Citizens Advice director of policy Teresa Perchard says: “Citizens Advice very much welcomes the exciting recommendations of the Thoresen Review and that the government is moving to take them forward. Today more than ever, people need access to free, impartial financial information and advice so that they can plan for their and their family’s future effectively.”

Thoresen’s delivery speech concludes: “My report establishes the case for, and sets out the blueprint of, a service that has the power to make a real difference to people’s lives. I am now passing the baton on to the government. I very much hope they will carry it forward to implementation.”

Only time will tell how it fits in with pension provision.