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Bureau de change

19 December 2014

Citizens Advice will offer pension guidance for all next year, but many will still need advice to make the right decisions.

Chancellor George Osborne’s far-reaching UK pension reforms will come into force in the spring, and alter fundamentally the rules that have governed for decades how Britons have approached the matter of funding their retirement. Of course, wider freedom and choice over how to draw down and spend pension savings means more retirement planning options than ever to consider. And, as this brave new world for Britain’s pension rules approaches, the need for reliable and expert financial advice has never been greater.

Britain’s government has acknowledged that people will need help in finding out about this wider range of retirement options, and has responded with plans for free and impartial guidance prior to retirement. The independent body Citizens Advice has been selected to offer face-to-face guidance through its national network of bureaux from April, while The Pensions Advisory Service will provide guidance over the phone. When he announced the free service in October, the chancellor said it would equip people to make informed decisions and “ensure that they are clear on their retirement income options before they make any decisions about what to do with their savings”.

Advice or guidance?

The free and impartial guidance will provide a useful first step for many people. However, it is likely that many more will want to build on it by taking advice to help them make the vital financial decisions that determine how they live out their retirement. Andrew Stokes, Head of Pensions at St. James’s Place, points out that guidance sounds very similar to advice – and, understandably, many investors are already confusing the two. “Guidance will not provide them with the answers, and many investors will still need advice from a qualified financial adviser,” observes Stokes. “People who want to do things for themselves – who are happy to get information – will be facilitated and will be able to make those decisions. But I think that most people don’t want to know what they can do, which is what guidance is about; they want to know what they should do, which is what advice is about.”

One reservation about the government’s proposed guidance is that it is only provided in the run-up to, and at the point of, retirement. “Most people need help much earlier,” says Stokes. Research conducted by UK insurer Standard Life in 2013 found that consumers who have taken pension advice during their working lives have a more realistic view of how much they need to save to produce sufficient retirement income. As a result, they end up with bigger pension funds; an average of £74,554 compared to £37,277 for those who have not taken advice.

Certainly, The Pensions Advisory Service and Citizens Advice have long experience in helping the public with financial issues. But while they will dispense information they will not provide tailored advice about which choice is likely to best suit people’s circumstances; which product, if any, they should buy; or assist the individual in carrying out required transaction. Moreover, the limitations of guidance will continue, warns Stokes, beyond retirement for investors who opt for drawdown and leave their pension pot invested. “Such investors are likely to need ongoing help with reviewing their investment decisions, but guidance will not provide this kind of support,” he adds.

Holistic planning

While the government intends the impartial guidance to concentrate on the options available to those on the point of retirement, Stokes argues that, in real life people rarely have just one financial need. “Undoubtedly the best option will be to regard the guidance as a ‘complementary’ service; and, as such, one that individuals can consult before seeking holistic advice from someone who is qualified in all aspects of financial planning.”

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