It is important that Government use language consistently and do not inadvertently mislead people about what they are going to get, whether it is guidance, advice or information, given face-to-face, over a telephone or through the internet.
The Red Book states:
“from April 2015, all individuals with defined contribution pension pots are offered free and impartial face-to-face guidance at the point of retirement”.
One might consider that a good and positive measure, but it raises some questions—questions that largely accord with the three tests we have set. First, there is a question about cost: the budget for guidance of just £20 million—£10 million each for 2015-16 and 2016-17—gives rise to some concern, as does its including no provision for this year. According to the tax impact and information note, the measures in the Bill will enable up to 400,000 people to draw down their pensions. I note that the Minister referred earlier to an updated tax impact and information note. Perhaps he can tell us whether he has revised any of those sets of numbers. We need to understand why nothing has been put aside for that free and impartial guidance in this financial year.
My hon. Friends spoke about what people need at the point they make a decision, which was also raised in Committee. People need access to information and guidance
in advance of drawdown, so we need to consider whether the point of retirement is the sensible time for financial planning.
Hon. Members will have noted the Government’s proposed allocation of £20 million over the two-year period, but it is questionable whether that will meet the need and the demand. Again, the matter was discussed extensively in Committee, but we did not get the required answers. For example, we are told that the sum is based on an expected cost of £70 to £100 per individual, yet the Association of British Insurers has estimated that 500,000 members of defined contribution pension schemes retire each year. If we take the lower end of the Government’s estimate and multiply it by 500,000, we get a total of £35 million, so there is a question whether the Government’s current budget for guidance would even be sufficient to meet the potential demand at a cost of £70 per head.
One industry insider, I understand, commented that
“the £20 million the Government is putting forward is a drop in the ocean”,
and, of course, the money is available only for the next two years, raising questions about what is supposed to happen after that. A further question is what savers can expect from guidance that costs between £70 and £100 per person. The Association of Professional Financial Advisers, for example, estimates that the average flat fee charged by an adviser for annuities advice—I say advice—is £681. We know that guidance carries none of the legal protections attached to advice, which is regulated. That no doubt accounts in part for the significant difference in cost between the two.
It is important to note the comments made by the pensions Minister when he appeared before the Work and Pensions Committee on 29 April. He said that the Government’s plan was for 15 minutes worth of guidance per person. In Committee, my hon. Friend the Member for Islwyn, who had significant experience in the financial services sector prior to entering the House, observed that when giving someone independent financial advice, it is not just their pension that has to be looked at, but their investments if they have any, their income, and the right product for them overall. He estimated that that could not be done effectively in less than two hours.
Advice and guidance are very different, and guidance begins to look less than adequate to meet some people’s requirements. Much confusion arises from the Chancellor’s comments in the Budget speech, which I accept were an innocent slip of the tongue, leading to a number of unintended consequences. We need clarity, not confusion, for people who are making major financial decisions. The pensions Minister told the Select Committee that guidance would
“lead more people to take formal advice”.
That has been endorsed by the Royal London insurance company, which said that guidance
“should be a rich source of referrals to financial advisers.”
Royal London has illustrated a number of issues in relation to what guidance ought to be and what would be a good practice model. For example, it says that there is a real prospect that many people who receive guidance will find that their needs are more complex than they originally thought, or that they do not know which of the retirement options would best suit their circumstances. There will be people in that category
who would not normally consider using a financial adviser but who would benefit from advice at that point. That raises the prospect of people being referred on.
Royal London considered the impact of guidance on debt levels. People approaching retirement who have debt to pay off may need information and support in deciding whether to use some of their pension funds to pay off the debt, and some would require debt counselling. Royal London highlighted the fact that guidance should encourage people to shop around for the best deal, and suggested that after providing advice, providers should not be allowed to approach customers to try to sell their own products for three months. Interestingly, the insurance company suggested that, rather than the issue becoming a political football, guidance would best be provided by a not-for-profit organisation with a single focus. I look forward to hearing the Minister’s comments on those points.
If guidance is a stepping stone to advice, does that leave the consumer with a considerable additional expense, which could run into hundreds of pounds? If it becomes routine to lead people from free guidance to paid-for advice, what is the point? Another question that we raised in Committee was whether guidance would be available to everyone, regardless of where they live. The Minister acknowledged today that some of the guidance may be made available through the internet, which will not be suitable for everyone and will not be face to face. We need more explanation of the comments of the pensions Minister when he suggested that group sessions were an option worth exploring. Are we to conclude that the Government’s position has moved from face-to-face advice or guidance to face-to-faces advice? I am not sure that many people would want to sit with others to discuss their private circumstances. I hope the Minister will deal with the point about face-to-face guidance, as it is important that people understand what is being offered.