Budget 2014: Does increased flexibility in pensions and savings bring increased responsibility for consumers?
March 20, 2014
By Tim Sexton
I think that it might. The Government's proposals on more flexibility about taking defined contribution (DC) funds at retirement would provide more freedom for people but also put them under more pressure to make the right choice from a range of options.
Rights and responsibilities are two sides of the same coin. So how will consumers feel about it, both at the time they retire and perhaps later on in old age when they might have to make further financial planning decisions? For some people, decisions that are easily made at age 65 might be harder to manage at age 85.
The Financial Conduct Authority (FCA) has expressed concerns that many people are not fully financially literate and so this new ‘right to free and impartial face-to-face guidance’ is potentially very important. We need to get a lot more information about what guidance and advice looks like, where the costs of providing it fall and what it really means?
For example, face-to-face means being delivered by real people, not through the internet or apps on smart phones. The FCA has pushed through the Retail Distribution Review, partly to raise the quality of financial advisers - but where is this army of face-to-face advisers going to come from, even if this is less regulated guidance rather than advice?
The Government wants to consult on various aspects around the right to guidance. The timetable for making decisions will need to be reasonably swift if the new regime is intended to be in place by April 2015.
Getting the guidance process right will be an important part of the new proposals, and probably also one of the most challenging parts. For someone retiring with a DC pension pot, making a decision on how much money, if any, to keep back in the pot to cover possible future nursing home fees will not be an easy decision, with or without guidance.
Tim Sexton is a director in our Pensions team. You can contact him on +44 (0) 20 721 23943 or by email at [email protected].