The Investment Management Association says Government proposals to set up a pension guidance service for savers must distinguish clearly between guidance and advice.
The call by the IMA follows a separate consultation paper issued today by the FCA which laid out details of proposed standards for guidance that will make up the guidance guarantee service for pension savers as set out by the government in the 2014 Budget.
The IMA says the plans to offer the service at retirement has a “potentially significant part to play” in the Government’s broader plans to ensure that those saving for retirement have greater flexibility and freedom of choice as they take retirement income.
The proposed standards for guidance under the service as set out in the FCA’s consultation paper are the “right ones”, according to the IMA, but it also adds that the “crucial point will be how these standards are translated into a useful and effective service” that can benefit consumers.
In its own report on the proposed service also issued today, the IMA highlights the particular need for a clear distinction for pension savers using the service between what constitutes guidance and regulated advice.
“The other key issue arising from the creation of the retirement guidance service is the distinction between guidance and regulated advice and the boundary between them. For many individuals, guidance and advice will be seen to be the same thing – the distinction between them will not necessarily be appreciated. Consumers may access the guidance service thinking that they will be directed to specific products,” it says.
The report continues: “It is therefore important that the delivery partners for the guidance service make very clear to consumers what the difference is between the guidance they will receive and advice which they may choose to pay for. In particular, consumers must be helped to understand exactly what is provided under the guidance service and what is provided under paid-for advice.”
The IMA also calls for the government to consider providing the service to pension savers in the build up to retirement as well as at the point of retirement income, based on the belied that guidance should not be a “one-off process.”
It says: “A central observation is that guidance is not a ‘one off’ process, and that the complexity of choices many individuals will face means that developing the right framework is of significant importance. For most individuals, guidance will be an implicit feature of investment through the accumulation phase, given a widespread dependence on auto- enrolment and default strategies.”
The FCA periodic fees framework has been recommended as a way of collecting a levy for the retirement guidance service but the IMA says “careful consideration” must be given to ensure that only firms involved in the retirement financial products market are required to fund the service.
“We would note that careful consideration needs to be given to which firms actually end up paying the retirement guidance levy – it should only be those firms that are actively participating in/benefitting from the retirement financial products market,” it adds.
“There may be some firms or entities within the existing fee blocks that won’t be involved in the retirement financial products market and should therefore not have to bear the costs of the retirement guidance service.”