Pensions minister Steve Webb discusses the guidance guarantee
12 June 2014
In the week that the Government consultation on the planned “guidance guarantee” closed with various suggestions about who might provide the “guidance”, pensions minister Steve Webb has shared some interesting thoughts on how this might work.
We are grateful to Professional Pensions for this report of the minister’s comments:
Speaking at the inaugural Retirement Planner Forum and Awards 2014, held in London this week, Webb said the guidance guarantee would only get people to the starting line - giving them only a basic understanding of what their options are and issues such as taxation and longevity.
But he said there was only so much that could be covered in such a limited conversation, which would only equip them with the very basics of retirement planning - and noted this would fuel demand for independent advice both on an individual and a workplace level. Webb addressed concerns raised by advisers over the 0.75% charge cap - explaining that, while this would be a hit to their business in the short term, he believed it would be beneficial to corporate advice over a longer period.
He explained: "Clearly we are in a transitional period - I don't think we are in equilibrium yet. I think the insurance companies are working out how much it is costing them to do what they need to do and what margin there is at 0.75% - they have got until next April to do it but inevitably they are going to squeeze other people's margins.”
"One of the things that will happen is that, instead of these services, this advice, being bundled in as part of an overall charge, they will be paid for separately. I take the point that there is a limit to which employers will want to pay for these things separately and think that is a challenge.”
"However employers do not have to offer above the auto-enrolment minimum anyway. But I believe those that do - the employers that get it, the employers that are really serious about pensions as part of the package - will, over time, regard workplace advice as something worth paying for. I can't say they will do this from day one, but over time the market will evolve particularly because of the budget freedoms and I think lots of workers will be interested in talking to someone who can offer tailored advice about their retirement options."
Webb added: "I take the point about the short term hit but, if advisers work hard to develop products that are attractive to employers, then we will get to a better place with regards to workplace advice."
Webb said he believed the guidance guarantee would be a "huge opportunity" for independent financial advisers generally.
Webb said: "There are some in the advice community who see this as a threat. I see it as a huge opportunity. I liken the guidance guarantee to wine tasting and you, the advisers, are a vintage wine.
"When people realise what choices they have; when there is innovation in product, which I am sure there will be; when people start to consider all their retirement wealth and income and all their partner's retirement wealth and income and all the different permeations of the new freedoms they have got, I think many people will want to talk further to someone who can help and that seems to me to be an adviser."
He added: "I see this as an opportunity. I think providers will innovate on products and there will be much more appetite from people to understand the issues and come to people who can give them personal tailored advice which, as financial advisers, you can do."
The minister also confirmed the government was looking at issues surrounding the recycling of tax relief when Budget freedoms are implemented - which would allow people over the age of 55 to invest in a pension and then immediately withdraw it as cash, taking advantage of the 25% tax-free lump sum to make a profit.