Pension Wise: What clients are going to get

SimplyBiz compliance expert Liz Coyle explains what clients will get from Pension Wise

Core to the government’s strategy for pensions freedom post-6 April is the opportunity to get free ‘guaranteed guidance’, branded Pension Wise, for all those approaching retirement.

The Pension Wise website is structured around six key areas:

1. Checking the value of their pension pot: Getting information from providers, either through annual statements, receiving a ‘wake-up pack’ or by contacting the provider direct for a valuation

2. Creating an understanding of what the individual can do with their pension pot: Leaving the pension pot untouched until needed, getting a guaranteed income (annuity), receiving tax-free cash, flexible income, taking the whole pension pot as cash – with 25% being tax-free, or a mix of these options

3. Planning how long the money needs to last using a Money Advice Service budget planner

4. Working out how much money the individual will have in retirement: Using the website to determine how to get a state pension forecast, other potential sources of income in retirement, and the effect of deferring retirement and of tax on the final amount received

5. Tax: What may be received tax-free, tax on the different types of pension income and guidance on the treatment of lump sums greater than 25% of the pension pot; and

6. The importance of shopping around to get the best deal and financial advice.

Visitors to the website are invited to register their interest in booking an appointment with a guidance specialist, providing basic details of their age, when they plan to retire and the type of pension they have, together with a brief outline of what they would like to get out of the appointment.

Setting the standard

The website makes clear that it does not recommend products or tell the visitor what to do with their money and who the changes will affect.

In its consultation in July 2014 (CP 14/11) the Financial Conduct Authority (FCA) set out the standards that all delivery partners should follow, together with the information that each session should include, which were confirmed in December 2014 (PS14/17 – Retirement Reforms and the Guidance Guarantee), including feedback on CP14/11.

The FCA specifies that all delivery partners must establish processes to ensure that the guidance is delivered consistently across delivery channels and that it:

• Sets out the scope, purpose and limitations of the session

• Sets out the information that will be used during the session

• Requests all relevant information from the consumer about their pension entitlement

• Requests relevant information about the consumer’s financial and personal circumstances that would inform the discussion

• Alerts the consumer to other sources of information and advice as appropriate and at relevant points during the session

• Discusses the relevant options and the key facts and consequences for each option and, based on the information provided by the consumer, sets out other issues for the consumer to consider

• Sets out next steps for the consumer to take forward; and

• Provides a record of the guidance session to the consumer, to include the options discussed and the key facts and consequences.

Helping the customer

The FCA also outlined its proposals for changes to the handbook:

• Adding a requirement for providers to signpost their customers to the guidance as they approach retirement, covering the content and timing of this signpost

• Adding guidance to make it clear that any behaviour by firms that seeks to sidestep the spirit of the guidance guarantee is likely to breach the requirement to act in the best interests of their customers and the principle of treating customers fairly

• Adding a requirement for firms to make a more general reference to the guidance in all communications to customers relating to their retirement options

• Amending the requirements around the open market option to broaden it to all retirement options, and providing further clarity on the FCA’s expectations on the information to be provided about the existing pension scheme

• Deleting references to maximum withdrawal limits for income withdrawal within the handbook; and

• Adding a requirement for providers to provide their customers with a description oft the potential tax implications whenever they apply to access some or their entire pension using any of the options available.

On this last point, in answer to the concerns that those contacting providers direct might not be made fully aware of the potential risks, to be explained as part of the Pension Wise service, the FCA issued additional rules at the end of February (PS 15/4).

They outline the type of questions that must be asked to identify the potential risks, and the nature of the risk warnings to be delivered by providers relating to how a consumer has decided to access their pension savings.

Risk factors include health, loss of guarantees, the existence of dependents, the effect of inflation, shopping around, sustainability of retirement income, tax implications, and charges should they choose to invest their pension savings.

Other factors include the impact on means-tested benefits (now and in the future), debt and the existence of investment scams.

But the precise details of these risk warnings have not been specified in the rules, with providers left to adapt them to their own products and processes.

Elizabeth Coyle is compliance policy manager at SimplyBiz