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BLOG: Govt should actively push consumers toward pension advice

Joanna Faith
Written By:
Joanna Faith

Matthew Phillips, managing director of Thomas Miller Investment, urges the government to actively encourage the use of pension advisers.

A report this week by the Work and Pensions Committee highlighted a number of concerns around the new pension freedoms, but has failed to address the inconvenient truth of where the country finds itself. The reality is that retirees’ choices are varied, older pension schemes are complex and a 45 minutes guidance session will offer nowhere near the level of assistance that most people need to make an informed decision.

This is not to say that all of their conclusions are without merit. Sorting out the regulatory befuddlement between advice and guidance is welcome, as is anything that reduces the jargon of the financial services industry, but here is the catch – it rather misses the point.

The only way to help people is for them to receive advice, and the reality is that with advice there are no half measures.  If you have a regulated advice community, it is binary – it either gives advice, for which it is liable, based on an individual’s full position, or it does not.  It is a tailored solution and tailored solutions come at a price.

Whilst, in time, lower cost “robo-advice” models will improve, and someone may find a way of producing a pension dashboard that can cope with the more arcane pension schemes, this development is some way off.  The inconvenient truth is that the only way to ensure people make good decisions is to ensure they get good, sound advice from highly qualified, highly-regulated advisers.  Let’s not stick our collective heads in the sand and let a generation retire, making poor decisions before the technology catches up.

The good news is that the Government has a cost effective option to encourage activity in this arena.  As Thomas Miller Investment highlighted in its response to the recent pensions green paper, HMRC permits employers to provide pensions advice up to the value of £150 without it counting as a P11d.  The Treasury could extend this rule to £500 or £1,000 per individual.  The tax loss to the exchequer is relatively small, and forward thinking employers can ensure that their employees are making the right decisions. Take up from employees will be higher as its cost is free to them and the Government can create an environment where good decisions are made.

Unless someone can come up with a better and practicable solution, it is time that Westminster faced up to some of the inconvenient truths about pensions and created an environment where use of the advice community is actively encouraged.