In announcing the Freedom and choices in pensions changes the Government has introduced the concept of the Guidance Guarantee.
Put simply everyone aged over 55 with a pension pot (a defined contribution pension plan) that they are considering converting into benefits will be entitled to “free and impartial guidance at retirement, to help them make confident and informed decisions.”
It is our contention that not only will “guidance” be confused with “advice” but that the provision of the Guidance Guarantee will be at best clunky and simply, in most cases, replicate what happens when a consumer takes authorised and regulated advice.
But it will leave the consumer hanging in the air no better equipped to make an informed choice.
It is claimed that the user of the Guidance Guarantee will be “signposted” towards the advisory community but frankly for up to 85% of guidance users will simply find the price of independent, impartial professional advice beyond their budget if they are seeking value for money.
Those people who need or want advice will already be seeking that service.
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Guidance |
Advice |
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Will I receive specific advice and recommendations about what I should do? |
No. Guidance is not Advice. It can help you to “think” about what you might do but it cannot replace specific advice and recommendations as to what you “should” do. |
Yes. Your adviser will provide specific advice and recommendations and tell you exactly what you should do |
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Will I be told about the advantages and disadvantages of any course of action? |
Yes. There are advantages and disadvantages to any course of action with your pension plan and the guidance service should highlight these. |
Yes. Your adviser will describe the advantages and disadvantages of any course of action that they recommend and will place equal emphasis on them. |
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Will the guidance provider or adviser obtain detailed information about my existing pension arrangements for me? |
No. The guidance provider will ask you a lot of questions to help you think about your choices and options but you will have to provide them with details about your existing retirement plans provided by your plan provider. |
Yes. Your adviser will ask you to provide a letter(s) of authority and will then do this work for you. They will obtain detailed information about your existing retirement plans from each of your plan providers. |
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Will the guidance service provider or the adviser be covered by Professional Indemnity Insurance and be subject to the Financial Ombudsman Service (FOS) rulings if a complaint is made and also protected by the Financial Services Compensation Scheme (FSCS)? |
No. Remember this is not authorised and regulated advice and the guidance service provider not therefore required to offer these protections. |
Yes. Your adviser will provide authorised and regulated advice and will therefore be required to offer these important protections |
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Will the guidance service provider or adviser provide me with a written report detailing the actions I need to take? |
Yes. The guidance service provider will confirm back to you the sorts of things that you need to think about before you make any decisions. |
Yes. Your adviser will confirm their advice and recommendations in writing before you proceed. This will typically be in the form of a detailed report or a suitability letter. Your adviser will discuss this report/letter with you so that you have the chance to ask and have answered any questions that arise. |
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Will I receive specific, personalised illustrations of the pensions product solutions being recommended? |
No. You will not receive a specific recommendations and will not therefore present you with specific personalised illustrations. |
Yes. Your adviser will present to you personalised and specific illustrations of any plan recommendations that they make. They will describe costs and charges and risk associated with their recommendations. |
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Guidance |
Advice |
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Will I be told which product provider I should use to provide my retirement benefits? |
No. Remember it is guidance and not advice |
Yes. Your adviser will research the whole of market and select plans that they believe based on their professional judgement are best for you. |
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If I decide to proceed with the guidance or advice will the service provider or adviser help me to complete any application form? |
No. Remember it is guidance not advice |
Yes. Your adviser will work with you to complete any application form(s) that are needed as well as any transfer forms required by your current pension plan provider. They will submit these forms to the recommended provider and ensure that your benefits are paid in a timely fashion. |
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Will I have to pay anything to the guidance service provider or adviser? |
No. the cost of the guidance will be borne by a levy on the financial services industry including the adviser community |
Yes. Your adviser will charge you for their professional services. Their charge will be disclosed to you in advance of any work commencing. |
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What is “signposting” and what value does it provide to me? |
Your pension provider will signpost you (point you to) the guidance service from The Money Advice Service (MAS) or The Pensions Advisory Service (TPAS) of MAS or TPAS believe you should seek advice they will signpost (point you to) you to advisors- you probably thought about doing that anyway! |
Advisers don’t “sign post” they give specific advice and recommendations- this is much more valuable than signposting |
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Will the guidance service provider or adviser remove the “stress” |
Not really, no |
Yes. Your adviser will de-stress the at retirement making decisions |
A far better solution is to compel pension plan providers to issue a guidance package as described in the FCA Consultation Paper CP14/11: Retirement reforms and the Guidance Guarantee and for a very strong wealth warning to be provided;
WARNING: Not shopping around before buying your pension benefits will make you worse off in retirement.
Do not fall into the trap being set, guidance is inferior to advice in just about every respect.
