David Harris says the overhaul of Pension Wise could allow more cost efficient and better thought out solutions for consumer advice to emerge.
Cars, caravans and conservatories have all been in great demand since the birth of pension freedom and choice in April 2015. Giving retirees unfettered access to retirement savings has also boosted taxation revenues for the Chancellor.
On the face of it, the pension freedoms massively increased access to financial advice too. The newly created Pension Wise programme, utilised the capacity and the new skills of The Pensions Advisory Services (TPAS), Money Advice Service (MAS) and the Citizens Advice Bureau. Some cynics reflect that this state aid for financial advice was a public relations exercise designed to deflect accusations that pensioners were being pushed into a draw-down arena, away from the protection of annuities. Pension Wise, with its extensive and expensive media awareness campaign, was surely intended to mitigate the risks of mis-selling. Confusing for anyone using the service, was that MAS and TPAS had ‘advisory' in their names but didn't offer financial advice as we know it, rather guidance and information.
Was the policy or solution well thought out? Industry commentators – including TOR – might argue that this was a policy hatched and shared only by the Chancellor and his immediate advisors and officials. The unintended consequences and related financial modelling were not well assessed.
In both the United States and Australia, financial guidance and information is largely delivered at the scheme level. Employers and scheme providers see it as their responsibility to forge ‘financial friendships' with employees and members. This emphasis is motivated, in part, by self-interest as scheme providers seek to retain plan members in retirement, and some employers wish to re-engage skilled workers out of retirement on a more flexible basis.
I thought it interesting to get a sanity check on the Pension wise policy from a senior manager with a large Melbourne based, Australian industry fund last month. This master trust sees it as an imperative to provide financial guidance, friendship and also advice, through retained financial advisers, for its 1.4 million members.
My senior management friend asked why was it necessary for government to disrupt the client relationship as they moved from the accumulation to the disbursement cycle noting that "trust and personal relationships would surely be better forged through the scheme provider who had worked with the employee in the accumulation cycle?" and asking "why would [members] want to suddenly engage with a government-sponsored entity"?
These were reasonable questions and suggested that Pension wise was unlikely to succeed because British retirees would either come to their own conclusions about their pension savings or gather insights from their employers/trustees.
And then... the March Budget signalled the demise of MAS and need to rebrand and recalibrate the Pension Wise solution. Furthermore, enhanced allowances for financial advice indicated that the Chancellor had worked out that the workplace maybe a better place for delivery of financial guidance and advice.
And then... the news that the number of advisers/guides working for Pension Wise would be cut by a third from about 287 in 2015/16 to 185 in 2016/2017 as the overall budget for the service is slashed by a quarter. But what about the additional 200 DWP staff who had been trained to meet the expected overflow in demand that never materialised? Needless to say, the expense for the taxpayer did materialise.
Here are two thoughts: It may be more cost efficient to allow people to download a simple voucher from a secure website to allow an initial amount of advice to be bought. And before new agencies are put in place for consumer advice perhaps the Chancellor and his advisers could take a look at international models and then consult.
David Harris is managing director at TOR Financial Consulting
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