Pensions - Articles - Government should fund first year of guidance guarantee


 In a response to the FCA’s consultation on retirement reforms and the guidance guarantee, MGM Advantage is calling for Government to fund the first year of the guidance guarantee levy instead of imposing this cost on the financial services industry.

 MGM Advantage has also called for the creation of a single-page ‘pensions passport’ to give the guidance provider all the information it needs to help consumers find the best value for their pensions.

 Addressing the FCA’s proposals for the guidance guarantee levy, MGM Advantage argues that appropriate industry levies cannot be set until the 2016/17 tax year, so the first year should be funded by Government and used to assess levels of take up for the service and relative benefit to different sectors.

 Andrew Tully, Pensions Technical Director at MGM Advantage said: “We believe there are significant issues with all three options for the guidance guarantee levy currently being considered by the FCA. The fundamental problem is there are two major unknowns: how many people will use the service, and which of the five fee block organisations will benefit and by how much.

 “We recommend that the first year’s levy should be financed by Government, especially as the Treasury should see significant benefit through additional income tax as retirees take advantage of new flexibility. The authorities can then assess how the guidance guarantee service is working in practice, and appropriate levies can be set for the 2016/17 tax year onward, based on how many people take up the service and which organisations benefit most.”

 MGM Advantage has also highlighted other areas where the guidance guarantee proposals could be improved. This includes calling for a ‘pensions passport’ directing consumers to guidance and advice which ensures the relevant provider has all the information they need to help consumers get the best value from their pensions.

 Andrew Tully added: “We agree the guidance should be delivered by independent organisations that are impartial. Previously around half of retirees bought an annuity with their existing provider, the vast majority of whom could get a better deal by shopping around. But the new flexibility does not solve this problem: if people continue to roll over into their current provider’s solution the market will still not be working properly.

 “To be effective the guidance provider needs details about the individual’s circumstances: their pension savings, their family, their health, whether they have any debt. We think the best way to achieve this is a single-page ‘pensions passport’ sent to consumers approaching retirement that can then be passed on to the guidance provider. This should contain all the relevant details, be free from provider branding and have a clear message on the importance of guidance and advice with appropriate contact details. If providers and schemes tell people about the availability of guidance in the midst of a large pack of information sent to a retiring customer, we are unlikely to achieve great take-up. So we believe wake-up packs should be abolished and replaced by the pension passport. This has significant cost savings to industry and more importantly will help customer understanding.

 “Ultimately though, guidance is only part of the answer – it is also crucial that there are clear hand-offs from guidance to professional financial advice.”

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