It is not random at all. My hon. Friend was the Member who, from a sedentary position, suggested that it was not about a bottle but a case. That is the big difference in that analogy. The cost of advice is significant. We should not be naive about the resistance of savers to paying that kind of money for advice even if it might be in their interests in the long run. That is another issue we cannot ignore. It is worth remembering that the Government initially said that the advice would be face to face. First it was advice; then it was guidance, face to face; and now it is guidance face to face, on the phone or online. One has to ask why.
I mentioned the take-up of guidance. Legal & General undertook a pilot in conjunction with TPAS and others. It offered guidance to 9,000 individuals reaching the point of retirement. Only 225 took up the offer, a princely total of 2.5%. Legal & General’s director of retirement solutions, Tim Gosden said subsequently:
“It will difficult to get around consumer apathy without making [guidance] compulsory. The choices are far more complicated and there are so many more opportunities to make big mistakes such as people cashing in their pots, which could have a significant effect.”
It is hard to argue with that statement.
The substance of the guidance will be absolutely critical, as I hope my remarks so far have indicated. On the issue of what guidance amounts to, the Minister has described it as giving a saver the pros and cons of various options with signposting towards advice, but there have been significant concerns about whether guidance as currently constituted under the Government’s plans will do the job. The Trades Union Congress noted:
“Independent guidance is clearly better than that provided by company sales teams”— of course it is—
“but half an hour of the best...advice will not equip people for what could be thirty years of managing their pension pot...The annuities market was broken, but what we need is the same careful consideration of policy, consumer preference and evidence that led to pensions auto-enrolment.”
The TUC allude to two issues, the first of which is managing a pension pot for 30 years. Guidance is a one-off 30-minute conversation face to face on the web or by phone. It is unlikely to equip a saver for a retirement lasting 30 years. It is easy to imagine circumstances in which it will subsequently make sense for a saver to take out an annuity. It might not make sense at the age of 55, but it might make sense at 75. The notion that guidance will provide all the answers for savers is unlikely. I reiterate that, since no one can predict their own longevity, there is a fundamental issue to start with—one that annuities were meant to solve by providing an income until death. Of course, the annuities market has not been working effectively in recent years.
The Pensions Minister talked to the Work and Pensions Committee in April about the nature of guidance. Looking at it, it is not actually devastating, but the issue is the substance of the guidance. The Minister and the FCA have made their views clear, but I will quote what the Minister said in April and compare that with what the FCA said in its consultation. The Minister said:
“The thing we are talking about is free to the customer. There is no charge for it. It is what we call ‘guidance’, rather than independent financial advice, so it is not formal, detailed, or product-specific; you can go and buy that if you want to, but this is familiarising people with the options they have and some of the concepts, even. Most people do not know what an annuity is.”
That is similar to what the Minister has said this morning. In its consultation on retirement reforms and the guidance guarantee, the FCA stated that, although it will not be product-specific,
“to be effective the guidance will need to be tailored, providing consumers with sufficient personalised information, so that they can understand their options and make confident, informed decisions about their retirement choices.”
It also states that the guidance should ensure that consumers are aware of
“the relevant options, and key facts and consequences of each, including financial consequences, e.g. tax implications.”
There was some dubiety during the evidence sessions about the breadth of the guidance to be provided. Will it simply be about someone’s pension pot, abstracted from their other assets and liabilities? That is critical. If the guidance is to meet the challenge set by both the Minister and the FCA, it has to be about more than the pension pot. How can an individual make a wise decision about what to do with their pension pot, or pots, if a broader view of their assets and liabilities is not included in the guidance conversation? That is very important.
The FCA is clear that the conversation should include tax implications, but working out the tax implications depends on a broad perspective of an individual’s assets and liabilities. That tension can be summed up by asking whether guidance is a portal towards advice or something more substantial. Are individuals making the right decisions about their pension pots, given their assets and liabilities more widely? Will that be part of the guidance conversation, or will that conversation only take place if someone pays for advice? Those questions are critical. Nothing the Minister has said this morning would convince one that it will be a guidance conversation that takes into account an individual’s widest financial circumstances.