Cutting out the need for financial advice.
The amount of support people need at retirement is up to the difficulty of the choices that are set them and their confidence in what is being offered them.
Financial advisers like DC pots as they require advice which is paid to them and on the face of it, what’s being argued for here is a simple way to cut out the middle man – the financial adviser.
At one end of the scale is the state pension which starts being paid as soon as the DWP have been told the bank you want the money to be paid into. Most people have something that’s acceptable. There may be some correspondence and the occasional dispute but essentially the state pension needs no decision and no support.
Next on the spectrum is the collective pension , which for this purpose starts with the defined benefit pension and continues with a workplace CDC plan. Here their is some difficulty about dependent pensions and the definition of spouse, there needs to be clarity from both sides but there should be little decision making otherwise – most will take their tax -free cash and will use the scheme’s default retirement age. It is possible to go early or late (not always for the latter- there are wrinkles but collective pensions are pretty easy)
It is with DC pensions that things get really hard. Here there are decisions to be taken about tax-free cash (all at once or as the money is drawn). There is the choice of annuity or drawdown or cashing out or a transfer to another DC pension or a combination of these. There might be a transfer to a DB plan when the saver is now in a public scheme.
The final level of difficulty is between occupational and contract based DC schemes. People’s Partnership is arguing that those who are in schemes regulated by The Pensions Regulator are entitled to less help than those in schemes regulated by the FCA. Most people have no idea that they are in one or the other.
Targeted support rules risk creating ‘two-tier’ system
This is the headline of the Pension Age article cut and pasted from the article on the People’s Pension website by David Meliveo.
Among other things, David is responsible for the member experience and he sees his own People’s Pension as having to offer less than were it a group personal pension. He is the Commercial Officer.
Commercial
Well I didn’t find out what “Targeted support” and its point is.
The master trust has called on the government to extend the targeted support framework to qualifying occupational pension schemes, arguing that members should not receive different levels of help based on whether their employer selected a trust-based or contract-based pension.
People’s Pension backed the introduction of targeted support, describing it as a potentially significant step towards closing the gap between generic information and regulated financial advice.
I hope I’m not being seen as facetious but People’s Pension need not have to worry long. Shortly they will be required to operate more like a collective pension and default members into “guided retirement” which is essentially a flex and fix arrangement where drawdown pays an increasing pension till an annuity is bought (with Nest at 85).
It is of course less secure than a collective pension. Some people will do well when they get to the point when they annuitize and some not so well, all the risk is born by the member and will depend on the fund returns of the pot (and the charges).
Targeted support appears to be a means by which nasty surprises are minimised.
It noted that targeted support could be particularly useful at key stages of the savings journey, including prompting members who may be under-saving, helping those approaching retirement understand income options and identifying when withdrawal rates could put long-term retirement income at risk.
Targeted support is about putting more in when saving and taking less out when spending. This does not make for “support” in my book. It makes for how the bank manager used to be (save more , spend less). No wonder ‘target support’s free – it ‘supports’ the DC pension by giving it more of our money for longer. But isn’t there another way of doing this?
Here I think collective pensions (DB and CDC) have an advantage in that they tell people how much pension they’re getting (not how big’s the pot) and if that’s enough they can pay voluntary additional contributions (AVCs as they are called).
This is easy enough. In retirement the amount you get is based on the retirement income you buy as you go along. It isn’t greatly influenced by returns as risk is spread over many people of different ages (compared to the flex and fix individual drawdown from the individual pot it’s very secure). DB has the additional guarantee from the employer but hard to find. I won’t call upon “targeted support” for the CDC scheme we’re setting up. We need everyone to see what they’re getting and enjoy the experience.
The targeted support is a worry, like the bank manager calling you in to tell you you are saving too little or spending too much. Why have it when you could be having a collective pension? Until recently employees did not have the choice of a collective pension but now they will, their employer can let them swap the angst of “targeted support” for a wage in retirement any employee can understand.
