The deal looks straightforward. You are 3 months from your 55th birthday (or older) and you have a Standard Life pension pot worth £50,000 (or more). You are prepared to pay £1000 (VAT included?) and you get one of 1o financial advisers selected by Standard Life to advise you on what to do.
There is a very thin gap between “underserved” and “undeserved“! Will those who do not pay the advisory cost be considered undeserved?
To be honest, when the Chancellor offered advice as guaranteed when he ripped up the pension rulebook in favour of freedom, I though this was what we would be getting (without the attaching £1000 bill).
In 2014 there was amazement that “advice“was offered in a budget speech and then taken away when “guidance” was considered enough as a guarantee the next day!
In his Budget speech, Chancellor George Osborne announced savers would be able to take their entire pension pot as cash at age 55 and people would be entitled to “free, impartial, face-to-face advice”.
It is an extraordinary product that you buy; the private savings plan that is sold as a pension but subsequently marketed as freedom from pensions. “Freedom” is not it appears “free” – one insurer is now admitting that the system has got so complicated that it may not be able to do the job properly. So much for targeted support.
A new service from Standard Life
You can read the press release from this link
There is something very odd about having to pay to learn how to use a product you have been paying for over time, it’s an admission that it is so complicated to decide on what to do with the pot, that part of it needs to be spent as an extra charge. We have yet to learn whether the £1,000 comes from the pot and if so what it does with regards crystallisation.
If it comes tax free out of the pension then the rules become complicated. My friends at Pension Bee sent me an article so that I understood what I was doing when I was considering liberating my tax-free cash sum to pay off my mortgage (another story).
Whether this advice is what George Osborne promised as “face to face” is in person, I don’t know. That got downgraded when Pension Wise realised the cost of that service!
If you want to understand why £1,000 might be a small price to pay for getting it wrong then I think you should have a read of the Pension Bee article
I must say , paying at most 2% of the pot at the point when I can start drawing my pension, does sound attractive and I am sure that Standard Life have done some work on making it a painless payment.
This £1000 (+ £500 ongoing payments to keep the relationship going) is no more than you’ll end up paying to have a face to face meeting with a solicitor or a tax-advisor and relative to the cost of getting a full on relationship with a financial advisor, it is “cheap“.
But it comes at a time when the Government (via its regulators) is pushing “targeted support” where it’s hoped that people will be able to get help at the point where it is most needed. Whether this is expected to come at a cost I doubt.
And this of course is for people who want to be on the front foot with their pension plans, making them work as hard as they can (see the slogan for this blog).
Most people don’t want anything to do with pension decision making, which is why we had to have auto-enrolment and why we are following that through with default decumulation (aka a pension at the other end – even if this is a deferred annuity under flex and fix).
But public pensions and private DB pensions have always worked on there being support for taking pensions from the scheme. It has not yet become necessary to pay an adviser to tell you how to get your defined benefit (unless you want to opt out of normal retirement age and the instructions you get about payments to others if you die). The state pension is even more basic, in terms of what people need to do to collect it.
We will see whether Standard Life get take up for this offer and how many of those who pay £1,000 initially, agree to pay for the service going forward (£500 pa)
Damian Cheater, CEO, Standard Life Financial Advice Services Ltd said:
With the onus increasingly on individuals to manage their retirement savings and less than 10 percent of people receiving financial advice, it’s clear that advice is currently out of reach for many, either due to cost or a feeling that they don’t have enough saved to consider having an adviser.
I find it easy to agree that targeted support is not available to most people without a lot of hard work and financial advice out of the financial reach of a good portion of the 90% who choose not to use it.
We had a promise we could do less to get our pension!
Private DB, public pensions and the State Pension all operate without advice and manage to keep the instructions (for the most part) simple.
For me the Pension Schemes Bill is an effort to ensure that for that part of the 90% who want their pension “done for them“, there is a regulated income that is paid to them so long as they are around. That of course is what most people think they are saving for.
I wonder if the offer of cheap advice from 55 will see pressure on people to make decisions. That is not what most people want from pensions!
We cannot have the underserved who do not pay for advice, considered undeserving.