Out-Law News 2 min. read
18 Jun 2014, 3:48 pm
In its response to a government consultation on widespread changes to UK pensions announced as part of this year's Budget (20-page / 402KB PDF), the Association of British Insurers said that the new regime needed to "strike the right balance of creating a simple and flexible framework while also providing the right protections to customers". It has suggested that the 'guidance guarantee' underpinning the new freedoms be provided by existing guidance services such as the Money Advice Service (MAS), Pensions Advisory Service (TPAS) and Citizens Advice.
In a letter to the chancellor co-signed by the National Association of Pension Funds (NAPF) ahead of the publication of its formal submission, the ABI said that "fundamental decisions" on the form and content of the guidance guarantee were needed quickly. The trade bodies warned that insurers and pension firms needed time to make the reforms, which are due to come into force in April 2015, successful.
"The guidance guarantee is a crucial part of the government's pension reform, and the industry fully supports the government's intention to provide free, impartial guidance to savers on their options as from next April," said ABI head Otto Thoresen.
"But time is not on our side. No one should under-estimate the work that needs to be done to make this a reality, which is why the government has some urgent decisions to make. We stand ready to help shape the guidance guarantee to make sure it fits well with current retirement communications and systems and delivers value for money," he said.
From April 2015, the government intends that members of defined contribution (DC) pension schemes would have more freedom to access their pension savings in any way that they wish from the age of 55, without facing heavy tax penalties or having to buy an annuity. This new freedom would be backed by guaranteed free and impartial face to face financial guidance at the point of retirement.
As part of the letter to the Chancellor, NAPF chief executive Joanne Segars said that there had been "an unnerving lack of detail from the government" about how the guidance guarantee would work in the three months since the Budget announcement. The NAPF and ABI said that the government must confirm what the guarantee would cover and who it would be available to; who would deliver the guidance; how the service would be funded; and who would be in charge of setting it up and coming up with standards by the end of July.
In its formal response to the Treasury consultation, the ABI said that the cost of providing the guidance guarantee would depend on what it was, who it was promoted to and how. It set out a number of scenarios in a supplementary document (42-page / 2MB PDF). The ABI's 'medium uptake' scenario would result in 200,000 customers receiving free guidance per year, at a total cost of £7.5 million. Uptake by 350,000 people would cost as much as £13m per year, it said.
"Consideration needs to be given to who pays [for this] and on what basis," the ABI said in its response. "To support a utility, an industry levy is required; if the content is as broad as expected, then the levy should have a broad base, beyond pension providers and schemes."
The ABI based its figures on delivery of the service through "existing guidance infrastructure" such as MAS or TPAS, assuming that 10% of users would want face-to-face guidance while the remaining 90% would access the service by telephone. Assuming that more customers would opt to receive advice online in later years, the costs of the service would continue to fall, it said.
After the scope of the guidance guarantee was established and its contents and standards became clearer, the government could look again at allowing product providers and "others with a commercial interest" to provide the guidance, the ABI said. However, safeguards would have to be put in place to ensure that this guidance was "genuinely impartial", it said.