Despite a general welcome for the white paper on personal accounts, several organisations are calling for a stronger focus on the role of advice.
Among them is the Resolution Foundation, which says more work needs to be done on the role of impartial advice if the proposals set out in Tuesday’s white paper: 'Personal accounts: a new way to save', are to move forward.
The organisation, which is currently investigating the feasibility of setting up a new national generic advice network, says overall it supports the proposals for personal accounts and the decision to remove many of the costs linked to current pensions such as the need for regulated advice.
However, it argues if the accounts are to work, they must be accompanied by the provision of impartial, generic advice to help people on low incomes make decisions, not just about whether to opt in or out of the new scheme, but also about their finances in a broader sense.
Sue Regan, chief executive of the Resolution Foundation, says: “Advice has a critical role to play in helping people make the right decisions about their pensions. We believe the government must do more than simply providing information – it must promote access to financial advice if it is to meet two of its key tests.”
The Pensions Policy Institute (PPI) also agrees investors into the new scheme will need to have clear information to decide whether saving in personal accounts is the appropriate thing to do.
Niki Cleale, director of the PPI, says the good news is personal accounts could give access to a low-cost pension with employer contributions to many people for the first time.
However, she warns: “The government will need to ensure people with low to median earnings have good incentives to save for their retirement and that people have access to clear information to help them make informed decisions about whether they should stay in or opt-out.”
Insurer Aegon and investment firm Jupiter Asset Management, are also among those organisations concerned that advice, generic or otherwise, was not mentioned in the white paper.
Edward Bonham Carter, joint chief executive of Jupiter, says the fact there is little or no room for advice in this product is raising some concern as people’s financial circumstances differ considerably, with many worried about making poor or inappropriate investment decisions.
He adds: “It is important savers see these savings as their own provision for retirement and are encouraged to actively engage in the decision-making process as the investment choices they make will affect the quality of their lives in retirement. Many people may feel they need help with these decisions.”
One of the reasons the industry feels there is a need for some kind of advice is because there will still be around a third of households eligible for means-tested benefits in 2050.
David Laws, Shadow Secretary of State for the Liberal Democrats, says personal accounts will remain “fatally flawed” as long as mass means-testing remains part of the benefits system, as some people on low incomes may keep as little as 15p for every pound they save.
He adds: “Personal accounts were meant to revolutionise pension savings for people on average and low incomes, but as the government has failed to curb the growing tide of means-tested benefits, it is clear that for many, personal accounts will be both inappropriate and unfair.”
Meanwhile, although Aegon says it appears the government is listening to industry concerns on issues such as the threat of ‘levelling down’, it says it questions whether the package put forward in the white paper will go far enough.
Rachel Vahey, head of pensions development at Aegon Scottish Equitable, says the government’s proposals have the potential to deliver, but warns "the devil will be in the detail", and adds it will be crucial the Personal Accounts Board is gven the correct remit.
She adds: “The good news is the door is still open to influencing the design of personal accounts. With generic individual financial advice to identify people for whom it pays to save, we can work towards the aim of getting more people retiring with adequate saving. The government is in listening mode and we need to build on that momentum.”
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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An added tier of asset management can of course deliver additional benefits for certain investors, writes Graham Bentley - just be sure you can justify it to the regulator and, especially, the client