Pension Reforms Legacy Risks Being An Own Goal
15 December 2014
Royal London calls for urgent action to reform the financial advice market ahead of implementation of new pension reforms
- ‘Perfect storm’ of Government’s pension reforms and Retail Distribution Review risks massive detriment for around 260,000 people
- Government pension reforms hugely increase need for affordable impartial advice to allow consumers to make informed decisions about pension provision
- Report commissioned by Royal London argues that a number of recent regulatory reforms all potentially limit the access of “middle market” retirees to financial advice
Royal London is calling for urgent reform to the financial advice market in order to avoid a ‘perfect storm’ and to protect consumers following the introduction of the Government’s pension reforms in April 2015. There is a risk of massive consumer detriment in the absence of urgent action to secure much greater access to financial advice.
As the Pension Schemes Bill enters the House of Lords, Royal London, the UK’s largest mutual life, investment and pensions company is asking Peers to strengthen the Bill. Royal London believes that, without appropriate impartial advice, there is a far greater risk that consumers use their newfound freedom to buy unsuitable products like income drawdown on a non-advised basis or “sleepwalk” into poor value products offered by their pension provider.
A report by Cazalet Consulting, commissioned by Royal London, argues that the Retail Distribution Review (RDR), the subsequent ban on consultancy charging and, for many schemes, the lack of relationship between scheme adviser and members, all conspire to limit “middle market” retirees’ access to affordable financial advice.
Royal London believes the need for impartial advice goes much further than the Government’s proposed ‘Guidance Guarantee’. The start of the Bill’s legislative scrutiny in the House of Lords gives an opportunity for Peers from across the political spectrum to put pressure on the Government to bring forward amendments setting out detailed proposals on how the advice market can be improved to meet the real needs of consumers most effectively.
Phil Loney, Group Chief Executive at Royal London said:
‘With less than four months to go we can see a ‘perfect storm’ brewing. Unless action is taken now to prevent the combination of a dramatic fall in the availability of impartial advice with the introduction of new found pensions freedoms the result could be massively detrimental to the consumer. This advice must be impartial and not simply a vehicle for the incumbent pension provider to sell their own products. Pensions Minister, Steve Webb and the Financial Conduct Authority have previously indicated their support for introducing a more affordable advice model – but over the past eight months nothing of consequence has happened. As the Pension Schemes Bill enters the House of Lords, this is the last chance to ensure these reforms deliver on the Budget rhetoric.’
Notes to Editors:
- Royal London sees a clear need for a lower cost model of advised sales to cater for those whose needs are complicated enough to require an advised discussion, but more modest than those who already use independent financial advisers. As a mutual, Royal London is committed to ensuring that its customers buy appropriate products for their circumstances.
- There is a danger that without action to reform the advice regime two separate groups begin to form
- those who can already afford to pay for impartial advice, are willing to do so, and who now have access to a more professional and transparent service. They are mostly individuals earning in excess of £50,000 and are extremely well-placed to benefit from the Government’s pension reforms; and
- a second group who do not have the resources of the first. They need impartial advice but are not an economic prospect for advisers given the amount they have available to invest and the current high cost of providing advice.
- The Cazalet Consulting report can be found here:
The report also concluded the following:
- Fear and uncertainty with regard to the advice/guidance semantics is serving as a major impediment to the provision of and access to financial decision-making support to help retirees (many of whom struggle with basic financial concepts) optimise their finances in later life.
- The FCA can be a major force for good by loosening its regulatory approach and working with industry participants to craft a supervisory framework that has the delivery of enhanced consumer outcomes as its central objective.
- The financial regulatory regime should be shaped with a view to providing the widest access to counselling to help the greatest number of consumers optimise their resources in their later years, the time in their lives when many of them will be at their most financially vulnerable.
- The 260,000 figure is based on the fact that in 2013, 65% of those who bought an annuity did so without taking any advice (source FCA paper MS14/3.2). There are annually around 400,000 retirees in the UK (source: Cazalet, p.25). 260,000 equates to 65% of this number.
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Gareth Evans 0207 506 6715/ 07919 170069 email@example.com