Plan to scrap pension advice costs

Press Association
Meeting with financial advisor
Meeting with financial advisor

Pension savers using the new retirement freedoms would be able to access their pot without being forced to pay for advice under a new proposed action plan set out by insurers to help people make the most of the flexibilities.

The Association of British Insurers (ABI) has written to Chancellor George Osborne and Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), with a set of proposals to help the take-up of the reforms go more smoothly.

A key suggestion from the ABI is that a new "customer control" mechanism should be created - which would allow customers to access their pot without having to pay for advice.

The ABI also wants to see a joint taskforce urgently set up to deal "decisively" with issues arising from the freedoms.

Calculate your pension income options

The action plan follows an announcement by Mr Osborne this week that a Treasury consultation will be launched next month, to make sure that people are not charged excessive early exit fees and are treated fairly when moving their pension to a company that offers them flexible options to access their savings.

If evidence of any excessive early exit fees is found, the option of capping these charges for people aged 55 and over will be looked at.

Mr Osborne previously said there were "clearly concerns" that some companies are not doing enough to make the new freedoms available.

But the ABI has said it rejects any suggestions that the industry is putting unnecessary obstacles in customers' way. It has said that the freedoms have been brought in with a "rushed timetable".

Launched on April 6, the new freedoms allow people aged 55 and over with a defined contribution (DC) pension to take their pot how they wish, subject to tax, rather than having to use the pot to buy a retirement income called an annuity. But is up to firms whether they want to offer customers the full range of freedoms.

There have been reports of people trying to use the freedoms facing high charges for withdrawals or for switching to rival firms, delays in paying out cash and having to pay high sums for financial advice if they want to access their money.

The customer control mechanism being proposed by the ABI would take the place of a requirement to pay for regulated advice by an FCA-authorised adviser where customers have pension savings that have guaranteed annuity rates and are valued at £30,000 or more. A guaranteed annuity rate could give a pension saver a higher level of retirement income than they would get on the open market.

People accessing their pot without paying for advice through the proposed new mechanism would need to have had a specific guidance session about this with the Government's free Pension Wise or the Pension Advisory Service (TPAS), to make sure they understood the implications, the ABI suggested.

Calculate your pension income options

ABI chairman Paul Evans and ABI director general, Huw Evans said: "While the vast majority of customers so far have successfully exercised their choices without complaint, it is clear that implementing the law and regulatory requirements as they currently stand is not enough to ensure the benefits of the reforms can be universally felt.

"This action plan proposes a solution to the problem of customers unable or unwilling to access advice in the circumstances set out in the law.

"We also request the urgent establishment of a joint taskforce between the Government, regulators, providers and advisers to work through the outstanding issues and deal decisively with them."

The action plan also calls for the FCA to conduct a broader review of the balance of responsibility between customers and providers and for the regulator to clearly set out the products and circumstances where advice should be taken.

The ABI said that, along with its members, it will also work to develop standardised language on products and charges to help customers consider their options and ensure clear, consistent communications to customers on products and services.

Pensioners Withdraw £1bn from Pots in Two Months
Pensioners Withdraw £1bn from Pots in Two Months

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