Stephenson Harwood partner Graham Wrightson gives his inimitable take on this week’s guidance guarantee
A question of trust?
For no particular reason, these words cast me back to the 1980s, wistfully recalling a key lyric from a certain Depeche Mode single (now I’m really showing my age!). There was a common misconception that the name of the group meant “fast fashion” but, for those French grammarians out there, it actually meant “fashion news” (after the magazine of the same name). “So what?”, I hear you cry.
Well, the latest pensions news which is going to be very much en vogue over the coming months is the Government’s response to its consultation on “Freedom and choice in pensions”. One of the key aspects of that response, and a good example of just-in-time manufacturing, is the so-called “guidance guarantee”. The signature piece of the guidance – which, given the emphasis placed on it, is perhaps a sad reflection on the pensions industry – is that it must be trusted by consumers; something which may not be the case if it is given by a person or organisation with a vested interest in selling a product or service.
So the Government is looking to hem in those who will be able to provide guidance to impartial sources with no actual, or potential, conflict of interest. Until the service reaches maturity, the bias is for the Pensions Advisory Service and the Money Advice Service to do this - to my mind, this can only be a good thing.
The Government also intends to weave a requirement into the legislation for providers and schemes to direct people to the guidance service as they approach retirement. The FCA is lined-up on the catwalk to regulate contract-based schemes, with equivalent legislative requirements being placed on the trustees of trust-based schemes (by embroidering existing disclosure requirements).
The appliqué to the signature piece, however, is the empowerment of people to make confident and informed choices on how they put their pension savings to best use. Guidance will stop short of offering specific recommendations to individuals but should provide many with a very good pointer in the right direction. Its method of delivery is now also clearer in that it can be over the ‘phone or web-based and need not just be face-to-face. All of this is laudable and clearly a significant step in the right direction. Let’s just hope people don’t think they are being spun a yarn with the result that they place no trust in the guidance they are being given.