The Pensions Advisory Service has said those organisations tasked with delivering the guidance guarantee should be “joined up” with the adviser community to improve member outcomes.
The guidance guarantee set out by chancellor George Osborne in the Budget allows for free, impartial guidance for all members of defined contribution schemes, but many industry figures have raised concerns around the implementation and effectiveness of the guarantee.
Guidance is absolutely essential to act almost like a bridge for people with a pension plan or a scheme to moving into what they do next
Michelle Cracknell. TPAS
Speaking at a panel discussion hosted by provider Prudential this week, Michelle Cracknell, chief executive of TPAS, said a five-stage process aimed at maximising the value of the guidance for members had been proposed to government.
In July it was announced that TPAS and the Money Advice Service would work with the Treasury and Department for Work and Pensions to develop the details of the scheme, which will be launched in April 2015.
“I’d like us to join up better with the adviser community,” said Cracknell. “We can be an intelligent interface to the adviser community.”
She added: “Guidance is absolutely essential to act almost like a bridge [for] people with a pension plan or a scheme to moving into what they do next.”
How it will be delivered
The first step in the process is a “strong call to action” to encourage people to engage with the guidance. This is followed by setting up a guidance appointment, preparing for it, and the appointment itself.
The final step would take the form of an output document, describing the member’s situation and some of the outcomes from their guidance meeting. This could be used to give financial advisers a summary of the individual’s situation, saving time and money.
“We’d like to see that output document [as] handing back the baton and the responsibility to the customer, but also to be the interface with the rest of the industry,” said Cracknell.
She also outlined the challenge posed by the general lack of understanding of pensions among scheme members.
“There is a huge, huge gap in the understanding of a lot of people with pensions and actually what choices they’ve got available currently, to do with their pensions,” she said.
Vince Smith-Hughes, head of business development at Prudential, said a lot of people were auto-enrolled without any engagement.
“Does it seem logical to think that they’re therefore going to be very well engaged when they come to draw their benefits?” he said. “That for me doesn’t seem sensible.”
Smith-Hughes also highlighted the importance of educating members ahead of their guidance meeting, to ensure they are equipped to make the best decision.
“It’s very easy for people in the industry to talk about these things when they’re used to the terms,” he said. “But generally speaking, a lot of the members of the public don’t understand these things, and if they see a large cheque in front of them they might very well decide that the thing to do is take out all your money in one go.”
Despite the increased freedoms, some predicted that retirees may end up favouring annuitisation over other options.
Billy Burrows, associate director at financial advisers Key Retirement Solutions, said: “If you can get clients to tell you what they really want without mentioning a product, what they’re describing is income for life with sustainability and with continual income for their loved ones.”
“Annuitisation is a good thing,” he added. “The product may have got a bad press but annuitisation as a concept has never been more relevant and never been more important.”
