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Firms face 'steep' levy to fund free pensions guidance

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Firms face 'steep' levy to fund free pensions guidance

Financial services firms could face a steep rise in their levies after the Treasury guaranteed free guidance for consumers in the wake of a dramatic overhaul to pensions. 

Chancellor George Osborne confirmed the guidance would be offered through independent bodies rather than pension providers, with the likes of The Money Advice Service (MAS) and The Pensions Advisory Service (TPAS) effectively forming a national wealth service.

The proposal comes after a consultation period that follows the government's decision to scrap the requirement to buy an annuity on retirement - disclosed in this year's Budget.

The guidance, which could be issued face-to-face, on the phone or online, will be funded by an additional levy on financial firms.

The scale of this levy remains unknown, but there are fears it could be high given the limited resources MAS and TPAS has to meet what is expected to a major increase in demand.  

JLT Employee Benefits chief executive Mark Wood underlined this concern, as he stressed it was vital that the independent advice given to people in the run-up to retirement is sufficiently rigourous and high quality.    

Wood said: 'The demand for advice around retirement saving will be much higher than ever before – particularly for those in defined benefit (DB) schemes - as people seek to replicate security of an annuity while taking advantage of the liberalisation‎.'  

He added: 'Organisations such as the Pensions Advisory Service and the Money Advice Service are currently nowhere near the scale needed to facilitate this.

'A massive training exercise and the creation of new advisory roles will therefore be required and we can assume that the levy on financial services firms to fund a national wealth service will be concomitantly steep.'

Hargreaves Lansdown also questioned whether MAS and TPAS have sufficient capacity to meet the new demands.

Hargreaves' head of pensions research Tom McPhail (pictured) said by using MAS and TPAS the Treasury had 'very sensibly opted for a demonstrably impartial solution'. However, he questioned whether these 'utility' services would have 'sufficient capacity to deliver the guidance to the hundreds of thousands who will ask for it'.

Product explosion

Analysts believe the pensions overhaul creates a major opportunity for wealth and advisory firms, with a number of companies talking about how they plan to exploit this.

These include Ashcourt Rowan, which recently sealed the acquisition of financial planning firm UK Wealth Management. Meanwhile Standard Life said it saw a 'significant' opportunity despite the 50% decline in its annuity sales in the aftermath of the Budget announcement.  

McPhail said the pensions changes open the door for further product design and believes the Financial Conduct Authority (FCA) will have a tough task monitoring this.   

'It will become increasingly difficult for ordinary investors to discern whether they are actually getting a good product or not. In many cases it will be unsophisticated investors with relatively small pots of perhaps only a few thousand or tens of thousands of pounds,' McPhail explained.

'The guidance guarantee will not help them here as it will not provide specific product advice, and paying for an independent financial adviser may be too expensive to justify.

'There will therefore be a huge job for the FCA to do in policing these new products, and the sales processes around them, to ensure that investors are sold competitively priced and appropriate products. Without this regulatory scrutiny, these pension freedoms could be nothing more than a misselling charter.'

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Profile: The opportunity set that attracted Brett Williams to wealth management

Profile: The opportunity set that attracted Brett Williams to wealth management

Brett Williams is best known for helping to build some of the biggest platforms in the IFA market.He made the move over to wealth management to head SEI’s UK business earlier this year in the belief that this is where the best opportunities now lie.

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