The government has announced that retirees will receive free, impartial guidance when they get flexible access to their pension pots from April 2015 onwards.
Guarantee of independent guidance
George Osborne has announced that people will get free, impartial guidance on what to do with the money in their defined contribution schemes (DC) as part of the major pension changes that are coming into force in April 2015. The final pension fund in DC schemes depends on investment returns.
Today’s further detail about the new arrangements follows a consultation on the reforms set out in the Budget, which increased the flexibility for people to access their pension pots. Up until now, most people have bought an annuity on retirement, but now there are other, more flexible options.
The new guidance session, known as the ‘guidance guarantee’ following the initial announcement, will be delivered by a range of independent organisations, including The Pensions Advisory Service (TPAS) and the Money Advice Service (MAS). This announcement follows concerns consumers would not trust information given by organisations with a vested interest in selling a financial product or service.
The guidance will be paid for by a levy on regulated financial firms and will not always be face-to-face but might be provided online or over the phone.
Which? welcomes the announcement
Which? executive director, Richard Lloyd, said in response to the announcement: ‘We welcome the separation of pensions guidance from sales.
‘It’s essential that people facing retirement get personalised, impartial support to navigate some of the most radical changes to the pensions market in decades, so it is absolutely right to separate this from sales processes. This decision will help avoid potential conflicts of interest when guidance is given, and will mean consumers are more likely to trust the information they get and make the right decisions.
‘It’s now for the regulator to establish the highest possible standards for both the pensions industry and those who will provide the guidance, so that people get better value for money out of their hard-earned pensions savings.’
Transfers from defined benefit schemes
The other part of today’s announcement outlined that the government will still allow individuals to transfer from private sector defined benefit (DB) schemes to defined contribution pension schemes, subject to two important safeguards.
The first new requirement is for an individual to take advice from an impartial financial adviser regulated by the FCA before a transfer can be accepted. Most DB schemes are still fairly generous and transferring to a DC scheme might not be in the individual’s interest.
There will also be new guidance for trustees on the use of their existing powers to delay transfer payments and take account of scheme funding levels when deciding on transfer values.