A strict code of practice for DC pension scheme trustees now includes at-retirement guidelines. But is it a missed opportunity when it comes to annuities?
The Pensions Regulator (TPR) has tightened its grip on the operation of trust-based defined contribution (DC) pensions with the commencement of its trustee code of practice.
The watchdog said DC will become the "dominant form of workplace pension" due to auto-enrolment and it, therefore, wanted to ensure all consumers are enrolled into well-managed schemes which give good outcomes.
In a shift from previous positions, TPR has said trustees must also now consider what happens to their members when they retire. The guidance states trustees must be familiar with options at the point of retirement and suggests pointing members towards independent advice or the use of an annuity broker.
Not good enough
Independent pension consultant Ros Altmann said the code was "another missed opportunity" and simply "wasn't good enough".
She claimed the code gives equal credence to using an IFA and an annuity broker, which she thinks is wrong.
"Trustees who follow this guidance should be helping them achieve superior outcomes. Nevertheless, the tone of the guidance is of concern. The regulator is indicating that sending members to an annuity broker is just as valid as using an IFA.
"This is simply not the case and is a missed opportunity to highlight the value of individual advice being in members' best interests," she said.
Altmann said pushing people towards a broker would invariably lead to an annuity purchase, when that is not the only option for savers. They could delay buying an annuity or go for an alternative product, such as drawdown, for example.
The commentator also highlighted that the guidance does not force trustees to disclose any fees and charges that are deducted from either from members' pension pots or from their annuity rate and claimed brokers often don't get as good a rate as advisers.
"One of the problems here is that there is no transparency on annuity rates and charges in the marketplace generally, so it is almost impossible to compare value for money between one service and another."
The cost of advice
Annuity Line head of business development Billy Burrows disagreed with Altmann's position.
He told PA: "The key to understanding the retirement market is to recognise that there are at least three types of clients; those with below average pension funds, those with above average and the high net worth clients. The average pension fund is only about £30,000.
"I advised clients for over 20 years so I know all about fees – what is the cost of providing advice, how much clients will pay and how they will pay it."
Burrows said the minimum fee for most advisers was £500, but meaningful advice cannot be delivered for less than £750. He added "proper advice" came in at more than £1,000.
"So the question is how to get better outcomes for those with, say, £30,000 or £50,000? The short answer is that this is difficult under the current rules but a change in the rules to recognise ‘simplified or focused advice' would help."
He also said Altmann was wrong when she said brokers could not negotiate better rates: "In practice the reverse is often true. Brokers can negotiate better deals and have more in-depth processes for enhanced annuities."
"My conclusion is that the debate about advice versus no-advice is the wrong one," he added. "The right debate is how the industry can work together to ensure the best outcomes for clients."
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