Otto Thoresen's pilots for his new Money Guidance Service could be ideal as a testing ground for generic advice for the annuity open market option (OMO), according to pensions expert Dr Ros Altmann.
However, she believes Money Guidance proposals will not be suitable for other types of retirement planning and most notably would be unable to cope with the “complexities of the interaction of personal accounts with state pensions”.
Writing in the first of the CII’s new thinkpiece articles, Altmann says there are areas where Thoresen’s proposals will take the industry in the right direction; annuity advice, debt management, financial planning and insurance.
Regarding annuities, she believes the pilot schemes could help people go through key basic questions before they buy an annuity and help them get a better rate. She believes the money to fund such an advice prototype is already in the product.
For example, on a typical £30,000 pension pot, £300-£600 is currently deducted as commission although individuals receive no help with the annuity purchase process. She suggests some of this money could fund the pilot money guidance schemes specialising in annuity advice.
Aside from annuities however, Altmann says there are “serious dangers with generic advice when applied to pension savings for the mass market”.
She raises concerns about where the advice would really encourage people to opt out of personal accounts when they should: “The system will be funded jointly by the Government and the financial services industry but both bodies have strong, short-term vested interest in ensuring people actually do contribute to pensions and personal accounts.
"It is therefore difficult to imaging the system working fully in the interest of the mass market general public.”
She says Money Guidance could also end up providing ‘generic advice’ that resembles the ‘impartial advice’ leaflets the government produced about final salary pensions which proved misleading.
“The Thoresen national money guidance service will make similar mistakes if people are not warned that state pension credit could take away much or all of their personal account pension,” Altmann warns.
The proposed extension of the Savings Gateway pilot to help lower earners to save is also potentially dangerous she says as it may provide equal or better savings incentives for lower earners than the tax relief on pension contributions.
“Again, how will generic advice cope with this and, if it does, will it not simply direct such people away from personal accounts,” she asks.IFAonline
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