Pension schemes are by nature complex beasts. The concept is simple, but the breadth of options available and the regulatory framework we live under can make it difficult for scheme members to navigate.
As pension professionals our aim should be to make life as simple as possible for the end user, but we have to be careful; semantics aside, there is a fine line between guidance and advice. How fine that line is and how far it can be pushed is debatable.
Pension scheme trustees and providers are obliged to give specific information to members and have a general duty to ensure that members have all the information they need to make an informed decision. They, or their agents, are not authorised to give advice in relation to those decisions.
Trustees must take great care, they must consider their position and the trust members place in them. They must recognise that decision-making for the scheme at large is not the same as decision-making for the individual
Now, you could argue that advice is just an opinion and, in a post-truth environment where the value of experts is questioned, that opinion is just another piece of information to be digested. Of course, that argument would be fundamentally flawed.
Why advice is a loaded term
If you have ever minuted a discussion with a lawyer, you will know that “advice” is a loaded word not to be used indiscriminately.
It has strong implications, especially for a regulated professional: when they advise it means something. It has the backing of their experience, qualifications and professional code and, possibly most importantly, they have to take responsibility for what they advise.
Of course, advice should not be followed blindly, it should be questioned and considered. However, fundamentally, regulated advice can be relied upon and provides a level of protection.
There is no real difference between unregulated advice and guidance – both can be dangerous and cannot be relied upon. If you are not a qualified adviser, you should not give advice; your opinion is only an opinion.
Guidance should only be given on matters you are an expert on or which are a matter of fact.
How can trustees navigate the advice and guidance waters?
Trustees must take great care; they must consider their position and the trust members place in them.
They must recognise that decision-making for the scheme at large is not the same as decision-making for the individual. They must realise that there is not a one-size-fits-all solution, that despite knowing someone for many years, they do not know all their needs.
Most importantly, they must know what they don’t know.
Trustees should have comprehensive knowledge and understanding of how their scheme works and of the regulatory environment.
They are free, and should be encouraged, to share that knowledge and understanding with the membership. However, they should be aware of the associated risks.
Should a member make a decision based on information provided by the trustees, or their agents, and that information is inaccurate or opinion-based, the member could have grounds for complaint and possibly, if financially worse off, compensation.
It is safest if trustees leave guidance to the experts. They should consult with their service providers on the level of information to provide to members and the method and style of delivery.
They should take advice on and discuss what default options should be made available and how they should be communicated.
Stick to the script at all times
Trustees should agree the scheme messages together as a body and at all times stick to that script – to go off script is to court danger.
Unilever launches guidance tool, but fear of giving advice still stops many
The Unilever Pension Fund has introduced an online initiative using example members to help savers plan their benefits, ahead of a clarification on the distinction between advice and guidance from the Financial Conduct Authority, HM Treasury and the Pensions Regulator.
Those messages should include themes for consideration when making decisions, risk warnings, public health announcements and most importantly, when and where to seek professional advice.
There should be strong guidelines set for frontline administration staff who are generally the interface for the membership; administrators are seldom qualified advisers, and generally the only additional guidance they should provide is on how to complete forms.
Members may not fully understand the choices, and providers should give the information they need at the time they need it and in a manner they can understand, but the member has to take responsibility for making an informed decision. Any guidance that is not entirely factual is bad advice.
Greig McGuinness is a trustee representative with Dalriada Trustees
