The UK Government has announced that the guaranteed guidance on pensions choices will be provided by independent organisations rather than pension schemes or providers.
The Government said that in order to ensure that the guidance is trusted by consumers, free and impartial guidance will be delivered by a range of partners, including the Pensions Advisory Service (TPAS) and the Money Advice Service (MAS).
The announcement follows the Government's consultation on how best to deliver how people access their pensions following the radical changes brought about by Budget 2014.
The Government also said that it will continue to allow individuals to transfer from private sector defined benefit (DB) schemes to defined contribution (DC) schemes, but this will be subject to two safeguards.
An individual will have to take advice from an impartial financial adviser regulated by the Financial Conduct Authority (FCA) before a transfer can be accepted, and new guidance for trustees on the use of their existing powers to delay transfer payments will be introduced, which will also take account of scheme funding levels when deciding on transfer values.
From April 2015, the guidance will be offered through a range of channels, including web-based, phone-based as well as face-to-face, and will be funded by a levy on regulated financial services in order to remain free.
Chancellor George Osborne said: "It's right to support hard working people that have taken the long-term decision to save for their future and I'm pleased that the responses we had to our proposals on making pensions more flexible have been overwhelmingly positive.
"We're making sure that people have the right support to make their own choice about how best to finance their retirement and I'm pleased to confirm that everyone with DC pension savings reaching pension age will get free and impartial guidance on their range of available choices at retirement."
The Government also announced that from 2028, it will increase the minimum age at which people can access their pension savings from 55 to 57.
There was a mixed reaction from the pensions industry concerning the Government's announcement.
Regarding guidance guarantee, the National Association of Pension Funds (NAPF) director of external affairs Graham Vidler said: "[The] announcement that the 'guidance guarantee' will be provided by independent organisations marks the very beginning of the work needed to make sure a guidance service is ready for savers."
The NAPF also said that there is still very little detail on how the guidance will work.
Barnet Waddingham senior consultant Malcolm McLean somewhat agreed with the NAPF and said: "It is still, however, not completely clear how this will work in practice and what the interfaces/overlaps might be with providers and indeed fully qualified financial advisers.
"It is also perhaps significant presumably on purely practical grounds that the original concept of face-to-face guidance has now been watered down to include telephone and other electronic means of contact."
Buck Consultant head of pensions policy Kevin LeGrand said: "A single piece of guidance, with limited focus, doesn't cut the mustard."
He added: "The guidance guarantee as proposed is of very limited value. It may be a useful guide to options in the limited context of the options available under the scheme once a member reaches a single fixed retirement date.
"But it cannot replace good quality advice which should take account of wider issues, such as the member's tax position, other wealth of the ember and their partner and whether the member intends to continue work in some form."
JLT Employee Benefits CEO Mark Wood said: "The overall plan to liberalise the pensions market and encourage people to maximise their pensions savings are to be applauded.
"It is vital, however, that the independent advice given to people in the run-up to retirement is sufficiently rigorous and high quality."
Regarding the announcement on DB schemes, the NAPF's Vidler said: "Allowing the transfer from DB to DC schemes is in keeping with the ethos of 'freedom and choice'. However, DB pensions are often highly valuable and anyone considering a transfer should think very carefully before making an irreversible decision.
"So the requirement for savers to take independent financial advice before making a transfer from a DB schemes is an important safeguard."
Barnett Waddingham partner Simon Taylor said: "It is welcome news that the Government has decided has decided not to ban transfers from private sector DB pension schemes to DC schemes.
"This leaves useful options open to members looking to take advantage of new flexibilities in DC schemes, and for employers looking to manage their DB liabilities."
Spence & Partners head of corporate advisory services Alan Collins said: "With the prospect of DB members looking to move to the far more flexible DC market, employers should review their on-going plans for the scheme and target available resources to fund transfer exercises.
"DB schemes continue to present a significant risk to employers, but with this announcement building on recent easements in The Pension Regulator's approach to funding, employers can start to manage that risk more effectively."
Even though there is now more freedom of choice for DB members, Towers Watson senior consultant Fiona Matthews does not expect there to be "a big overnight exodus" from DB pensions.
CBI director-general John Cridland agreed and said: "We don't believe that there will be a significant flight from DB schemes, as some fear, because many people like the security of a reliable income so we don't expect a major impact on the bond markets."
Concerning the announcement that DB members will be required to take advice before they are allowed to transfer to a DC scheme, Broadstone actuarial director John Broome Saunders said: "We have no problem with encouraging or facilitating advice, but making it compulsory is a step too far.
"If the Government really believes in flexibility and choice, they should be brave enough to allow individuals to make their own financial decisions."
First published 22.07.2014
monique_simpson@wilmington.co.uk
