You’ll be unsurprised to learn that I’m not an avid listener of Radio 1 – certainly not any more – but I prefer the, shall we say, more sedate listening of its sister station, Radio 2.
Just last week I managed to catch the Jeremy Vine show on the station and found myself listening to the Pensions Minister, Steve Webb taking call after call from somewhat anxious listeners. They all had genuine concerns about what was happening in the pensions sector, and ultimately how it would affect their own pension and their retirement. Webb actually handled all the calls very well but it did bring home to me just how complicated many people’s pension arrangements are and that, even with the new flexibility and the Government’s aim of simplifying pensions, the fact is that many people are often at a loss as to how to proceed.
Ultimately, one would hope the new pension rules will make the whole process far simpler but, at present, with many caught between the two regimes and with the media often focusing on drawing down large pension sums to splash out on supercars or buy-to-let properties, it is perhaps no wonder that things are getting somewhat confused. As the Jeremy Vine phone-in clearly illustrated, many people look to next April and want to know what they will do, where they will go for advice and what the future holds.
Of course, ‘advice’ is not going to be readily available from the Government – and perhaps nor should it. Instead, we have the Guidance Guarantee, which we hope will be ready for those near or in retirement. But the big questions remain - how far will this guidance go and just how much of an individual’s total assets and wealth will it take into account? Is this going to be guidance on just the pension pot and nothing else?
And the whole notion of ‘guidance’ is also a tricky area. To my mind the Guidance Guarantee is going to be a good place to start but I see it as the first step, where these people start the process of full financial advice taking into account all their assets, pensions, savings and property wealth. Guidance should naturally move on to advice because there’s one thing people are not going to get with guidance, and that’s a recommendation of what to do.
And what do they do? The average pension pot is said to be around £25k, although I have heard it suggested that people may hold one, two or even three of these pots – so how should they approach this new found pension freedom? Surely people are going to need some form of income, so cashing in their pension pots may not be the best thing to do and then there is the tax situation to take into account and even their State benefits may be affected.
It is a veritable minefield and one suspects those organisations delivering the guidance are not going to want to tie themselves up in knots or leave themselves open to the accusation that they have provided someone with advice. Therefore, the advisory community have to make their voice heard and step into the debate – they need to be marketing their services to this very demographic and telling them of the benefits of guidance but the ultimate drawbacks they will face. The fact is nobody providing guidance is going to recommend to them what they need to do.
It’s only by taking full financial advice that they may find they’re in a very good financial position to achieve their goals, however those with insufficient pensions and savings may need to take into account their property wealth and look at things such as renting out spare rooms, downsizing or using equity release in order to meet their needs. Regulated advisers will be able to offer this insight, those provided guidance will not.
