The mass market of people retiring over the next few years no default means to spend their money and no access to suitably priced advice. That is the conclusion of the FCA consultation on Retirement Outcomes that has just closed.
I have talked about the need to innovate new risk-sharing product. I am now looking at advice.
The FCA’s view as stated in the document is
I have written to the FCA , suggesting that this is analysis ignores the impact of its own agencies, the Money Advice Service, Pension Wise and the Pensions Advisory Service.
£75m has been spent on the vanity project that is Pension Wise since it started up in 2015. Despite all the advertising , it has delivered relatively little compared to TPAS on which only £11m has been spent.
Anyone who has been live to the issues surrounding Retirement Outcomes will be aware of the tireless work of Michelle Cracknell, TPAS’ CEO and her team. It is extraordinary that the FCA do not recognise that – despite the failure of Pension Wise, TPAS continue to enjoy the support and respect of everyone who uses them.
TPAS is the great unsung hero of the Pension Freedoms and has done more to help ordinary people than any other Government agency.
Learning from TPAS.
TPAS does not do fancy modellers and does not offer robo-advice. Instead it offers people the chance to talk on the phone or on a web-chat to real people who have experience with pensions and could properly be called pension experts. I have had many chances to talk with TPAS who never seem too busy to help.
I have been to their offices in Victoria (London) several times. The place is always busy with real work – that is helping real people with real problems. While we have seen various regulators and other Government Agencies agonise about metaphysical problems such as “financial empowerment”, TPAS has got its head down and made a real difference.
What we know is that if the DWP want to put money behind a project, they can do. NEST is now projecting to borrow £1.2bn in DWP loans at a subsidised rate of interest. NEST is ensuring that auto-enrolment is happening and I do not quibble at it being funded in this way.
But I do not see why TPAS should be ignored for the success story that it is, starved of development funds and faced with the existential threat of being merged into the Single Financial Guidance Body.
This Body, due for creation in 2018 is being set up to help the 5m employers that NEST, in its submission to the FCA, claim have no help.
It seems bizarre that NEST should be dismissing , prior to its inception, the very body that could be its salvation but maybe it knows something we don’t, that the Single Financial Guidance Body does not feature in Government plans or that it is going to be so inter, that it will be as ineffective as Pension Wise.
If the Single Financial Body really is so inconsequential to NEST and the FCA, then we really are in trouble. The complexity of the retirement decision making demanded of ordinary people at retirement is such that I doubt we will ever see a robo-adviser that can properly explain things.
Financial modelling is all very well but it is not going to be high on the list of things to do for most people approaching retirement. The FCA may dream of metaphysical concepts of financial empowerment but there is no evidence anywhere in the world of the kind of financial literacy they are demanding of UK citizens.
Learning from Cridland
As well as ignoring TPAS, the FCA are ignoring the advice of John Cridland, who the DWP commissioned to advise on the state retirement age earlier this year.
In Cridland’s report, there is the following recommendation
To support the gradual transition to retirement a Mid-Life MoT will provide workers with holistic advice to prepare for the transition
The transition being the shift from a reliance on work as the primary source of income to a reliance on pension income.
Just why are the FCA not picking up on this? Why are they ignoring both the great work of TPAS and the recommendation of its own adviser? Why is it so desperate to see market solutions to what is essentially a societal problem?
Another example of silo-based thinking in Government?
When I was at the FCA’s Retirement Outcomes workshop, I noticed the DWP and tPR were represented, I tried to solicit their views on these and other matters, they could not be drawn. The meeting was dominated by the major insurers and SIPP players who ignored any comments of mine relating to risk-sharing, the potential of the Single Financial Guidance Body and the proven track record of TPAS.
None of the above fits conveniently into the vision of financial empowerment shared conveniently by advisers, regulators and providers.
So we have the Pension Regulator and the FCA, the DWP and the Treasury, pursuing parallel solutions to the same problem, with NEST seemingly making a bid to take on not just the job of helping us all save but helping us to spend.
If NEST is not promoting the work of TPAS and its successor, I will. The article that appeared in the FT on Friday has NEST promoting its capacity to solve the advisory issues of the 5000 without mentioning the guidance in the system nor the recommendations of the Cridland report. It would seem that NEST is a silo all of its own, one that is sucking money out of the system with scant regard for anything but itself.
I am very angry that this is the case. It is now over four years since these pension freedoms were announced and three years since they came into place. Government is belatedly waking up to the problem but showing no sign of working towards a joined up solution.