Don’t rely on the Government’s pension ‘guidance guarantee’21 July 2014
David Smith, financial planning expert at advisory firm Bestinvest, comments on today’s announcement by HM Treasury that “free and impartial guidance” over the new range of pensions choices announced in the Budget will be delivered by ‘partners’ such as the Pensions Advisory Service and the Money Advice Service rather than pension schemes or product providers.
“The Chancellor heralded nothing short of a ‘pensions revolution’ in the last Budget, announcing that from April 2015 pensions savers from age 55 will be able to cash in their defined contribution pension plans if they wish, subject to taxation at their marginal rate, and will no longer be required to purchase an annuity or keep their pension running.”
“This huge increase in flexibility has been widely welcomed and should help rehabilitate the often negative perception of pensions among the wider public as schemes which lock up their money. Yet it also carries the risk that people will make choices that leave them unable to fully fund their retirement."
“While tongue-in-cheek comments by pensions minister Steve Webb that retirees could use their proceeds to purchase Lamborghini sports cars if they wished have previously captured the headlines, the more likely scenario is that large numbers of people will be tempted to cash in their pension to purchase property, such is the public’s love affair with residential housing.”
“To address the concern that people will make rash or uninformed choices leaving them unable to fully fund themselves in later life, the Chancellor had stated that measures would be introduced to provide free face-face ‘advice’ at retirement. While it was initially suggested this would be facilitated through the pensions providers themselves, today the Treasury has announced that what will be made available is ‘guidance’, not advice, and it will be provided by a range of quangos who are independent of pension providers.”
“While this is a clearly a step in the right direction, as the public are likely to be sceptical as to the impartiality of a pension provider, it is important to also recognise this has real limitations.”
“Firstly, people need to develop a retirement plan many years ahead of retirement in order to secure a decent outcome. An adequate financial position in retirement is all about understanding the required level of savings that need to be made. Use of tax efficient plans such as ISAs and pensions need to be considered where possible and of course the selection of high quality underlying investments is of paramount importance. None of this is to be provided under the pensions guidance scheme announced today."
“Secondly, while guidance on the range of options available such as cashing in a pension, purchasing an annuity or keeping the pension plan running and drawing an income is important, ultimately most individuals will still need help selecting a specific solution such as which annuity or which funds to choose from the thousands of options available. After all, the biggest problem with the annuities market to-date has been the failure of most people to shop around when choosing an annuity and to simply go with the default option available from their pensions providers. Selecting a decent retirement solution, whether a portfolio of funds or an annuity will still require expert help.”
“In summary the much hyped ‘guidance guarantee’ will only work effectively when dovetailed with the services of regulated firms of financial intermediaries who research the wide range of product options available.”
To speak with David Smith, please call 0191 269 9970 / 07778 066 367 or email firstname.lastname@example.org
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Founded in 1986, Bestinvest has grown to become a leading private client investment adviser, looking after £5 billion of assets. We offer a range of investment services from the Online Investment Service for self-directed investors to Investment Advisory and Investment Management services for clients who do not have the time or inclination to manage their own investments.
All of our services are underpinned by rigorous research aimed at identifying those fund managers we believe will deliver long-term superior performance. We also have a team of expert financial planners with nationwide coverage to help clients with their pensions, retirement or Inheritance Tax planning. At Bestinvest, we pride ourselves on offering the highest levels of professionalism and expertise with transparent, competitive prices. We are pleased that our greatest source of new business is from personal referrals from existing clients.
Bestinvest has won numerous awards including Stockbroker of the Year, Low-Cost Sipp Provider of the Year and Self-Select ISA Provider of the Year at The Investors Chronicle and Financial Times Investment Awards 2013. Bestinvest also won UK Wealth Manager of the Year 2013 and Best Wealth Manager for Investments at The Investors Chronicle and the Financial Times Wealth Management Awards 2013.
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