Snowdon: 'unseen army' of non-IFAs could deliver guidance guarantee

In fact, I would like to see it available to all members of occupational pension schemes whenever choices need to be made, for example on joining or leaving a scheme. If we are serious about encouraging people to save for retirement, we must be prepared to help them make sensible choices.

Any organisation that meets minimum standards could provide guidance on behalf of schemes and providers in an outsourced capacity

There is concern that there may not be enough resources to deliver guidance to the 400,000 DC retirees each year. However, guidance need not be the domain of regulated advisers.

There is an unseen army who could provide high-quality, trusted help to members: pension scheme administrators.

Administrators talk to members every day about benefits and options, but feel unable to help individuals with their choices for fear of inadvertently crossing into regulated advice.

This barrier gets in the way and sends members towards well-meaning friends, or in some cases into the clutches of salesmen and scammers.

So how to ensure the delivery of quality guidance without falling foul of Financial Conduct Authority regulations? How to ensure that guidance is impartial with the individual at its heart? How to avoid expensive post-event monitoring?

The success of any guidance will be down to the quality of the guide. Quality input will lead to higher-quality outcomes and generate confidence in the system.

We already see examples of organisations offering free guidance, only to then lead people towards financial products or worse. If this persists, guidance will be undermined.

The Pensions Management Institute, the Pensions Advisory Service and JLT Employee Benefits have been developing a professional qualification in pension scheme member guidance aimed at experienced pensions administrators and others with suitable pensions knowledge.

Good guidance is already provided by specialist IFAs, in the context of incentive exercises, and some non-commercial organisations.

I believe any organisation that meets minimum standards could provide guidance on behalf of schemes and providers in an outsourced capacity. 

There is a role for the commercial sector where there is scale and capacity, at the right level of skill. Pension scheme administrators, in-house or third party, provide an obvious impartial source.

I favour a default, low-cost service provided by the non-commercial sector, with an option for schemes and providers who wish to select an alternative commercial model for their members to do so.

It is important that schemes and providers, who will be required to offer and pay for the guidance, can select a partner to deliver the guidance, and ensure quality delivery.

This selection will also maintain a competitive tension, ensuring that pricing remains keen and quality and innovation remain high.

Leaving choice to schemes and providers is more likely to lead to expansion of guidance, while also encouraging schemes that already provide expensive pre-retirement counselling to continue to do so.

Ensuring good guidance

Monitoring quality is necessary, but how you undertake it can make a difference. Guidance is not advice: there is no need for a contract between the guide and the member.

Guidance makes no recommendations. Instead, it collects relevant information, discusses options and reflects member preferences in a conversation which may be recorded, summarised and shared back with the member, but remains a conversation.

Independent accreditation of organisations, commercial or non-commercial, who deliver guidance could be put in place through spot-checking processes, guide credentials and performance, by experts who understand guidance.

Non-commercial organisations could oversee this, as could the Pensions Regulator. The FCA would be credible, but could inadvertently blur the important distinction between advice and guidance, resulting in fewer organisations willing to deliver it. Commercial firms such as auditors could also do this, but would cost more.

April 2015 is not far away. A solution must be ready, even if a cut-down version initially. Some administrators could be ready to provide the guidance by then, but permitting a period of time to meet all the quality standards – interim accreditation could be awarded, for example – would help get us to where we need to be.

Margaret Snowdon is chair of the Pensions Administration Standards Association and director at JLT Employee Benefits

This article was written prior to the further detail on the guidance guarantee that was revealed this week.