Pension providers could end up being responsible for informing people about the dangers of personal accounts.
Speaking at a pension briefing held in conjunction with Cass Business School, Adrian Boulding, pensions strategy director at Legal & General, says in the future providers, particularly in a branded model, will have to help customers decide whether personal accounts are suitable for them.
He warns there is a danger automatic enrolment will sweep in too many people, when things like paying off debt or buying income protection for a young family would be a better use of their money.
Fellow speaker Debbie Harrison, a senior visiting fellow of the Pensions Institute at Cass, says: “The government needs to consult more with the industry on means testing, but the issue of how best to protect these people and who will be responsible for this protection is a real issue.”
As a result Boulding says it will fall on providers to “turn away the unsuitables”, those people for whom it would be not in their best interests to save, and he says this means providers will be responsible for getting the information to the consumer.
And Boulding says proposed methods providers could use include:
- Letters to new entrants,
- Leaflets at work
- Video downloads
Boulding says: “I think it will fall to providers to do this, as the duty of a good financial services provider, although essentially it will be down to the individual to make the choice, we can only put the information out there and then monitor how successful the messages have been.”
He points out in future providers will be behaving less like insurance salesman and “more like nightclub bouncers”, and he warns the industry should not thing the system is being operated successfully simply because everybody is auto-enrolled, instead he says this could be a problem.
Boulding adds: “We will want to keep the unsuitables out for two reasons, one is genuine consumer interest as it is not suitable and they’d be better off putting their money under a mattress and secondly because it will be in our interests, as if we enrol people into a product which is unsuitable it will some back and bit us and could lead to claims of mis-selling.”
Harrison suggests there could also be a very simple checklist which wouldn’t give a personal answer but which would flag up a potential problem so they could ask for help, although she says there is a problem straight away as there is no place in the system to provide advice.
She says: “People will probably end up going to places like Citizens Advice, but it is still an issue which needs to be addressed as otherwise there could be problems of mis-selling and it puts the reputation of both the government and the industry on the line.”
But John Lawson, head of pensions policy at Standard Life, suggests there should be some strong product regulation instead.
He says: “We’ve suggested regulation could take these people out of the equation by restricting the entrance requirements to those under the age of 40, and those earning above £20-25,000.”
But he says the providers will have some responsibility to customers through the ‘Treating Customers Fairly’ regime, which he says means not bringing people into a scheme which would be unsuitable.
Lawson says: “Otherwise 10 to 15 years down the line there will be some angry people saying they shouldn’t have saved in the scheme and if it’s the industry branded model then we’re the ones who will get the blame.”
In addition he says restricting entrance to the scheme will mean people who would be better off opting out will not have to go through the whole complicated process of finding out their state pension entitlement, combined with any current savings, to then project whether that means they will be eligible for means-testing.
He warns: “The decision process for these people is just too complicated and it’s beyond the knowledge of most people, so the cost of giving guidance and retrieving their forecasts would be enormous, and not priced into the system.”
“Government can’t run around and say no-one will be affected by means-testing,” says Lawson. “There are big issues here central to personal accounts which must be solved, it’s not about charges, it is about the suitability issue and whether it can work with means-testing in place.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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From 6 April 2019