Ian Sayers blog: Solving the conundrum of pensions advice

There is a puzzle at the heart of the Government’s proposals for pension advice.  Having taking one of the boldest, and most welcome, steps in many a year to free up pensions, we are in danger of creating something of a ‘closed-shop’ when it comes to the advice that we all agree will be essential.  The current proposal is that the pension provider should be responsible for providing advice to those about to retire.

This is the curious aspect of the Government’s plans. On one hand the Government is giving individuals freedom to make their own choices about how they finance their retirement.  On the other, they are restricting access to the guidance they need, which will be dominated, at least initially, by pension fund providers.

It is difficult to see how this approach can ensure the independence of the advice. Even if the obvious conflicts of interest can be managed (in fact, more so if they can) what incentives do pension providers have to compete on the quality of the advice they offer if they cannot benefit commercially from this?

Independence, quality and competition in the interests of the consumer should be at the heart of any solution. This is why the AIC has put forward its own proposals to HMT.  We have suggested that the Government considers a voucher scheme to pay for independent advice. This would be akin to the system of childcare vouchers, which is already well established. The Government would allocate a credit to each individual approaching retirement which would allow them to ‘buy’ advice from anyone suitably qualified.

Giving vouchers will stimulate competition in the advice market. IFAs and others would vie for business on the basis of price and quality. They would have incentives to use the initial contact with investors to develop a long term relationship, with a view to helping them manage their savings over their retirement. The expertise of independent advisers will also maximise the pressure on product providers to offer good value products which deliver what the investor truly needs.

There is already a pool of independent professionals, such as IFAs, who are qualified to provide this kind of high-quality, independent advice. Why not use them?