Pensions – Who’s mis-selling whom?

An investigation by the Daily Telegraph suggests that new pension freedoms have come at a price, with pensioners charged for withdrawing their savings. This, combined with the apparent resurrection of the annuity market after George Osborne’s kiss of death, has caused confusion – not least for financial advisers. AML Creative Director Richard Germain unravels the pensions puzzle.

Former pensions minister Stephen Webb made a telling comment in his post-election interview with the FT at the weekend. Talking about the pensions reforms announced by George Osborne in the 2014 Budget – in particular giving savers aged 55 and over the freedom to do as they wished with their pension funds by removing the requirement to buy an annuity – Mr Webb said, “As soon as I heard what was being mooted, the first word I said was: advice.” His prescience is remarkable. Such has been the general confusion around the biggest shake-up in the pensions industry for a century, that advice is what everyone needs.

Stephen Webb’s own advice was that pensioners might want to withdraw all of their pension if they so wished and blow it on a Lamborghini. (I imagine that fellow MP Patrick McLoughlin, Secretary of State for Transport, wasn’t impressed with that idea.) They were told they would be able to access their money “like a bank account”, withdrawing money as they needed to spend on holidays and home improvements. But since the reforms came into effect this April, it’s turned out that the predicted ‘dash for cash’ by over 55s has been more of a ‘dash and then trip over.’

As recently revealed by The Daily Telegraph (see the report here), although some pensioners have been able to withdraw their pension funds, others have come up against quite a few hurdles. Friends Life customers, it was reported, have been refused the right to use their pensions like bank accounts. Some retirees have been charged up to £240 per withdrawal. Others have been prevented from making withdrawals of less than £5,000, or have been completely denied flexible access to funds worth less than £30,000. It’s all a bit of a mess, as acknowledged by Stephen Webb’s lucky successor, Baroness Altmann, who said recently, “The patchwork quilt of charges and different levels of services provided by firms is also worrying and something I want to look at with colleagues across the Government urgently.”

You have to feel sorry for financial advisers, who are trying to advise their at-retirements clients whilst having a different rug pulled from beneath their feet every five minutes. It’s an issue we’re highlighting in our Revenge of the Pensioners press, digital and video campaign for Partnership Assurance, the UK’s leading provider of enhanced annuities (see the Revenge of the Pensioners work here). It’s a light-hearted campaign with a very serious message. Advisers are required by law to do everything they can to ensure their clients are financially secure and can cover their essential costs in retirement. The only way to guarantee that is through an annuity. If advisers fail in their duty, they could be accused of mis-selling by the Ombudsman, receive a fine and lose their reputation. It’s a pretty off-putting message, but one we made engaging by suggesting that an adviser’s professional fall from grace would be nothing compared to what their pensioner clients would do to them when they ran out of money. Revenge really is best served old.

So Stephen Webb was right. Advice is exactly what’s required in the new and confused pensions environment. It’s just that it’s the advisers who perhaps need advising the most.