Delivering on George Osborne’s promise of “free, impartial guidance for all retirees” was never going to be a simple task.
Starting from scratch with a project that big was never going to work, especially on such tight implementation deadlines, so it was rightly fitting the highest esteemed organisation The Pensions Advisory Service (TPAS) was called upon to help deliver pensions freedom guidance.
The woman at the helm of TPAS, Michelle Cracknell, has been in the pensions industry for 27 years but is under no illusions about the size of the challenge faced by her outfit. She also well aware of the difference between advice and guidance.
TPAS is poised to take hundreds of thousands more phone calls from April as it becomes the telephone-based arm of Pension Wise. The face-to-face element of the guidance guarantee will be delivered by Citizens Advice.
Cracknell is confident the organisation can adapt to the challenge and give effective guidance to thousands of retirees dealing with pensions freedom.
Cracknell, a former adviser herself, says her organisation is fully committed to signposting retirees to regulated financial advice during the course of their interaction with TPAS.
She has no misconceptions about the clear divide between guidance and advice, and is sure people who talk to TPAS will be more keen to seek out – and pay for – full financial advice.
She tells Retirement Planner: “We strongly believe people do not know what they do not know. People who come to us will then understand the extent of the decisions they are making. They will then see how advice can add value.
“After having spoken to us, they will probably be more likely to take advice and definitely more likely to pay for it.”
She adds: “There are swathes of the population that are not connected to financial advice. We think through guidance people will then understand the issues they have to face. They will be more likely to go for advice. We think it is a very complementary service.”
Advisers, along with the rest of the financial services community, will be paying for the ongoing costs of Pension Wise, previously known as the guidance guarantee. Projections put advisers’ share of the levy bill at £4.2m for 2015-2016. And Cracknell says she is well aware of the cost pressure on advisers.
“I appreciated that advisers have seen compliance costs continue to rise. We can’t comment on the way the Treasury and the Financial Conduct Authority collects the levy. What we are doing is a series of presentations to advisers on how we see advice and guidance dovetailing together to get them more comfortable.
“Sometimes it [guidance and advice] gets reported as an ‘either/or’. It is definitely not an ‘either/or’.”
Working in tandem with advisers is a key strategy for TPAS. However, Cracknell also suggests advisers start thinking differently about potential clients.
“We have spoken to a number of advice firms about smaller cases, to ascertain how interested they would they be [in smaller retirement pots]. Of course, we want to make sure that people are referred on to advice and advisers want to take on the business.
“Some of the firms specialsing in retirement advice do have lower thresholds as to what is deemed as profitable business. Some firms are using telephone-based retirement advisers, for example, which means they can make money out of smaller cases.”
She adds: “For a number of people, going into advice for the first time can be daunting. My personal belief is that advisers may have to look at dealing with a transaction in the first instance. For example, someone wants some help with his £60,000 additional voluntary contribution (AVC) pot, which may then lead to a full financial plan.
“A full financial plan might be a leap too far for the individual in the first instance. It might be a case of ‘let’s test it and see’. A number of advisers, trade bodies and professional bodies, such as the Personal Finance Society, have talked about this idea.”
‘It all takes time’
Cracknell also warns there will be pressure on pension administration, which people may find frustrating from 6 April onwards.
“What I don’t think a lot of people realise is that they are going to have to exit a plan; the provider may require them to take advice or guidance, then they are going to have to enter into a new plan. That is all going to take time.
“People are probably thinking they have been waiting for 12 months and come April, they will be able to get their money. But it isn’t going to work like that.
“Even when they are just cashing in their pension plan, they may have to move from an old personal pension to a new-style personal pension plan from where they can take their pot in one or two slugs. That is going to take time and I do not think a lot of people appreciate that.”
Cracknell adds while providers have to prepare themselves, it is essential all concerned “manage customer expectations”.
“We really want to keep people positive about pensions. We have had the past few months where people have been positive about their pensions. We mustn’t blow it in April and May. Part of that is really understanding the consequences of their actions and that cashing in their pensions is an irrevocable action, which could land you with an unexpected tax bill.”
Cracknell says she is “desperate” for people to take guidance and hopes it will become ingrained in society as a normal thing to do. But she is well aware there is a long way to go.
TPAS is conducting pilot schemes with insurance companies. However, take-up has been disappointing.
“The take-up on the Legal & General pilot was low. But the feedback from people who took up the guidance was very good. Ultimately, what I would love to see is that the general public think it is normal to receive guidance.
“But in the meantime, we need safety nets and health warnings in place, just to say to people that these are big decisions. In the same way buying an annuity is an irrevocable action, cashing in your pension fund is an irrevocable action. We need to get people to stop and press the pause button.”
Taking on the fraudsters
Cracknell also warned retirees about the scourge of pension liberation, adding TPAS staff deal with heart-breaking cases on a regular basis: “One of the things that upsets us hugely is pension scams. People will come to us and say they are a bit suspicious, and then say their friends have already done it. It is very rare for people who have gone through with pension scams to ask for our help.
“It is also very difficult to estimate how many people have been involved in these schemes because people do shut down when things go wrong.”
She continues: “This will continue. We do not believe this can be stopped by any form of legislation. People who are committed to stealing money will find some way of doing it. Pensions has been a very good target – people have not liked their pension fund and pots have usually been significant amounts of money.
“I do not think there is a magic bullet. In association with the Association of British Insurers, we have tried to communicate to customers to make them more savvy.
“One constant that we hear about with all of the liberation calls is people offering guaranteed investment returns. Most reputable firms are not offering guarantees, at all.”
CV: Michelle Cracknell
- Michelle Cracknell has been the chief executive of TPAS since 2013.
- She began her career as a pensions consultant at Advisory & Brokerage Services Ltd. She stayed at the firm for 20 years, in which she became a director and qualified as a pensions actuary in 1997.
- In 2007, Cracknell joined Skandia as strategy director and then worked as a consultant for three years. Her projects included the impact of the Retail Distribution Review, the defined contribution pensions landscape and wealth management propositions.
- Throughout her career, Cracknell’s key desire has been to make pensions more accessible to the public so they can make proper provision for their retirement.