Wealth Manager - the site for professional investment managers

Register for full access to Citywire’s Fund Manager database, news and analysis. Registration is free and only takes a minute.

Firms face 'steep' levy to fund free pensions guidance

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.'

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Inside ETFs: Why the US bull-run still has legs

Inside ETFs: Why the US bull-run still has legs

Global equities suffered a sharp sell-off in the third quarter but exchange traded fund investors are continuing to back the US to outperform in 2015

Play Paul Niven: I won't rip up the Foreign & Colonial Trust history book

Paul Niven: I won't rip up the Foreign & Colonial Trust history book

The newly appointed manager of the Foreign & Colonial trust talks about his plans for UK's oldest investment company.

Play Dangerous daisy chains, Black Friday blues and Uber valuations

Dangerous daisy chains, Black Friday blues and Uber valuations

This week’s Investment Pulse looks at the domino effect in European banks, America’s disappointing Black Friday and how much Uber is really worth.

Your Business: Cover Star Club

Manchester wealth firm hires Coutts director for London launch

Manchester wealth firm hires Coutts director for London launch

Former Coutts director Tony Robinson has joined Chartered Wealth Management to head the company’s newly opened London office.

Wealth Manager on Twitter