What the guidance guarantee means for your scheme

Even with the government’s response to the consultation and the Financial Conduct Authority's own consultation paper, there remain a number of outstanding questions.

However, despite the challenges, the proposals present a fantastic opportunity to get defined contribution pension scheme members more involved and knowledgeable about retirement planning.

For trustees and plan sponsors with DC schemes, there may be a number of steps they will need to go through in order to introduce the guidance guarantee. 

Understanding the guarantee

Approaches for trustees and plan sponsors may need to differ slightly to reflect applicable roles and responsibilities.

It is unclear how many delivery partners will be involved in providing the guidance – the Pensions Advisory Service and Money Advice Service have already been suggested – but there is likely to be a requirement for fiduciaries to select their preferred partner.

For contract-based schemes, the product provider would make this decision, but plan sponsors may wish to understand the process that has been followed.

It remains to be seen to what extent the guidance service will differ between these organisations. For example, what type of delivery approach they will offer, eg face-to-face, online or telephone, and what will best suit different scheme members? 

It is clear the guidance guarantee may not in itself be sufficient to answer all the questions an individual might have about their later-life options. 

As Steve Webb has said, the guidance will only get people to the starting line, what happens from there on in, and even preceding it, may be even more important and could lead to questions from members directed at trustees or plan sponsors. 

It may be that a scheme considers appointing a panel of independent advisers to which members can be directed if they want to continue their conversations. 

As a minimum, trustees and plan sponsors may need to know about the other sources of information or guidance that might develop around later-life financial planning – the guidance ecosystem.

Readying your scheme

Trustees will also need to understand what responsibilities they have for deferred members of their scheme. The implication from the FCA consultation is DC members may be able to receive a guidance guarantee session for each pension pot they have.

The introduction of the guarantee might be a significant event and may need to be communicated to scheme members. This could include a requirement to update scheme documentation and possibly produce standalone pieces, eg Q&As, to cover the inevitable questions that will arise. 

In addition, a key part of the guidance service may be ensuring scheme members prepare for their meeting. Trustees and plan sponsors may wish to consider how much support they provide individuals during this process.

The Pensions Regulator’s code of practice on governance and administration of occupational DC schemes has specific recommendations around the appointment and ongoing management of external service providers. It is unclear yet whether the guidance delivery partners will fall under this remit.

In addition, as part of its quality features for DC schemes, the regulator has produced a set of guidance around what a robust retirement process should include.  

Although this may need to be refreshed as the rules of the guidance guarantee become clearer, there are already some useful suggestions around segmenting your scheme members, for example by expected pot size and age, and targeting communication accordingly. 

The introduction of the guidance guarantee presents an opportunity to review timelines and events around your scheme’s retirement processes and, more broadly, the level of financial education provided to members.  

Lydia Fearn is head of DC investment consulting at Barclays Corporate & Employer Solutions