Probably the biggest risk created by the government’s imminent pensions revolution is the possibility that millions of consumers will make seriously bad decisions.
Freedom and choice are great if you know what you are doing, or you can afford to pay a financial adviser to help you. But for many of the over 55s who from April will be able to access their entire pension pot the freedom and choice policy opens up the possibility of making some seriously expensive mistakes. Withdraw too much in one go and you will pay much more tax than you need to, spend too quickly and you will run out of cash, look to invest it elsewhere and you could fall prey to one of the many sharks now targeting retiring workers.
To attempt to stop people from making bad, irrevocable decisions Chancellor George Osborne has pledged that everyone with a defined contribution pension approaching retirement will get access to free, impartial guidance on their options. In January the government unveiled the brand of the new service that is to deliver this service, which is called ‘Pension wise: Your money. Your choice’, or ‘Pension Wise’ for short. Its new website is now live at www.pensionwise.gov.uk.
People approaching retirement can access their Pension Wise guidance session in two ways. Face-to-face consultations with retirees are being delivered through Citizens Advice (England and Wales), Citizens Advice Scotland and Northern Ireland Association of Citizens Advice Bureaux. Telephone consultations are being delivered by The Pensions Advisory Service (TPAS).
Citizens Advice has named 44 bureaux nationwide that will deliver face-to-face sessions, with further sessions available at outreach locations in the areas covered by the delivery centres.
Sessions will be delivered by specially trained CAB and TPAS staff, who will deliver guidance on key areas such as planning how long money needs to last, what tax will be payable, the implications of debt, what products are available and how to shop around for the best deal. The guidance sessions will also focus on how to avoid pension scams and rip-off charges.
Individuals will be asked information about their accumulated pension pots and other financial and personal circumstances so tailored help and guidance can be given. But they will not be given specific product or provider recommendations, which only regulated financial advisers are allowed to do.
Retirees are not obliged to take a Pension Wise session before they access their cash, but we urge employers to do all they can to make clear the availability of the free, impartial service. Many retiring workers will not have a sufficiently big pension pot to make paying for financial advice worth their while, and some of those that do may balk at the cost. So we strongly recommend highlighting Pension Wise to employees as they approach the age when they are expected to retire.
Employees are entitled to one Pension Wise session each, but they can speak to TPAS whenever they want, or access a wealth of information on its website www.pensionsadvisoryservice.org.uk. Employers can also direct retiring employees, or employees of all ages for that matter, to a directory of financial advisers through the Money Advice Service website – www.moneyadviceservice.org.uk.
Having put a lot of money and effort into securing the best possible pension pot for your employees, you don’t want them to make costly mistakes at retirement. The Pension Wise service does not hold all the answers, but it is a valuable piece in the bigger employee education and engagement jigsaw.