Pension firms will not be allowed to advise people on their retirement options from next April, but they will effectively be forced to pay for independent advice for retirees.
The Chancellor, George Osborne, yesterday filled in much of the detail around the new pension freedoms he announced in his March Budget, which was largely welcomed by consumer groups but left much of the pensions industry still warning of potential problems.
Crucially, Mr Osborne said the guaranteed guidance on pension choices offered as part of the new rules must be provided by independent organisations rather than pension schemes or providers.
The advice will be free to the consumer but will be paid for by a levy on regulated financial services firms.
The Chancellor pointed out that Treasury research showed that “consumers would not trust guidance given by a person or organisation with a vested interest in selling a financial product or service”.
He said: “We’re making sure that people have the right support to make their own choice about how best to finance their retirement. Everyone with defined contribution pension savings reaching pension age will get free and impartial guidance.”
The changes follow years of concerns that annuities may have been mis-sold as pension providers were allowed to effectively put people into their own products, irrespective of whether they were the best or most cost-effective option.
Mr Osborne’s statement draws a line under that practice and he said that some 18 million people would be able to benefit from the changes, which come into force in April next year.
In the future pensions guidance will be offered through a range of channels, including web-based, phone-based as well as face-to-face, from organisations such as the Pensions Advisory Service and Money Advice Service.
Pensions expert Ros Altmann said: “The guidance opens the door for new and better products, as well as improving financial literacy nationwide. It could be the start of a whole new industry, which will ensure people have a better idea of how to plan their finances and how to assess their retirement options.”
Richard Lloyd at Which? said: “It’s essential that people facing retirement get personalised, impartial support to navigate some of the most radical changes to the pensions market in decades, so it is absolutely right to separate this from sales processes. This decision will help avoid potential conflicts of interest when guidance is given.”
But Neil Lovatt of Scottish Friendly said of the free guidance plans: “This feels a bit like window dressing on the part of the Government. It’s a solution that cannot possibly cope with the level of demand that should be placed upon it – which leads me to believe that it won’t be implemented properly.”
Meanwhile Nigel Barlow at the special insurer Partnership warned that the levy could hit financial advisers. “The suggestion that financial advisers may need to fund up to 30 per cent of the guidance costs came as somewhat of a shock to the industry as a whole and further clarification is needed around this.”
The Treasury also confirmed yesterday that it will allow new pensioners in private sector defined-benefit schemes to transfer into defined-contribution pension schemes, but with two new safeguards: a requirement to take advice and new guidance for trustees of the existing schemes.