NOW OPEN: the MSE Forum 'Ask An Expert' event. This time we'd like your questions on TRAVEL & HOLIDAY DEALS. Post by Wed and deals expert MSE Oli will answer as many as he can.
MSE News: Confused by pension options? Free, impartial advice is coming in 2015
Former_MSE_Helen
Former MSE 2.4K Posts
From next April millions of people will be able to get free, impartial advice on how to make the most of their pension...
Read the full story:
Confused by pension options? Free, impartial advice is coming in 2015
Click reply below to discuss. If you haven’t already, join the forum to reply. If you aren’t sure how it all works, read our New to Forum? Intro Guide.
Confused by pension options? Free, impartial advice is coming in 2015
Click reply below to discuss. If you haven’t already, join the forum to reply. If you aren’t sure how it all works, read our New to Forum? Intro Guide.
0
This discussion has been closed.
Latest MSE News and Guides
Replies
Someone will have to pay for it.
Johnny Was. Once.
Why did he think "systolic" ?
Surprisingly, my paid-up pensions in several small accounts have been growing in the last three years, after twelve years of going nowhere. So it's quite possible that I might have £50kish altogether by the time I get to retirement age. 67, 68, 69? Fortunately I don't really need it, but I still would prefer not to pay tax on it I when I spend it. So here is my idea.
25% lump sum is free, but you still have to pay tax on the remaining 75% when you take it out, unless you buy an annuity. Let us say I reach age 65, my contracted retirement age, and the pot is worth £50k. They will probably invent some exit fee to rip me off, called Market Value Adjustment or something, so £48k, which means 25% is £12k. So I take out £12k tax free, leaving £36k in the pot.
If you have ever been on a Cunard cruise, you would agree it's a de facto retirement village. Instead of buying an annuity, what if I use the pension pot to buy "retirement services"? I transfer the £36k to Cunard, who keeps it inside an account for me. The cost of a cruise, including on-shore excursions and bits and pieces, is somewhere around £2,000, if you are not too fussed about having a window. £36k / 2 = 13 cruises. As I don't expect to climb the Everest in my 70s, two or three cruises a year sounds fine by me. Even better if Cunard can deduct it from the pension pot without incurring income tax.
I expect the way it can work is if the HMRC expands the definition of annuity to "retirement benefits", and using your pension pot to buy these "retirement benefits" is not considered a taxable draw down.
A particularly useful benefit is paying for retirement homes, which include on-site care and medical facilities. The obvious plus is if the OAP pays for all or part of his/her own care, it relieves the local authority's care costs. This alone should qualify for tax free status.
If Cunard were to put in a resident geriatric specialist on board a ship, and qualify for retirement home status, it could work.
We do have to remember what happened to Luncheon Vouchers. More and more merchandise/services will try to qualify for tax free status, until it gets abused beyond recognition, and the HMRC will clamp down on it hard. But not before I get £36k worth of tax free draw down, please. HeHe.
No it is not. Advice will not be free. Guidance will be free but if the guidance is to seek advice then the advice will be charged.
Also, technically, the guidance is free to the end user but it is paid for by a levy on financial services which will recover it in product/advice charges.
It wont do that. Nor should it do so as it then creates a bias on distribution.
As things stand, flow chart style guidance is how it would appear to be. You will not have regulated and qualified advisers giving the guidance and you will not have the usual consumer protections that advice gives. It wont not include product/provider information either. So, at the end of the flow chart/guidance when the person says "who should I do it with" they will not be told that bit but told it is either something you can research yourself or get advice on.
It will also be interesting to see how the guidance caters for all the variations of product that will exist in the marketplace. If its going to remain generic, then will it stick to generic norms and ignore the marketplace which may have addons/features that differ from the generic? Also, just because something is right in a text book, does not mean it is in the real world. For example, if an IFA recommended a friendly society savings plan today, chances are it would be a mis-sale in many cases. However, in qualifications and study material used to meet the regulator standards, it is still treated as a tax efficient option. Generically it is. Commercially it is not. So, will we see similar issues come into play where the flow chart guidance suggests one thing, the person then gets advice and the adviser says something different.
There is also the issue that the regulator still considers capacity for loss and affordability to be key things in the advice process. The guidance may cater for those that are saying they want all their money out but an adviser may not be able to facilitate that as their advice process may deem that unsuitable. So, you could have conflict in guidance and advice. If the guidance is positioned correctly that can be avoided. However, if they try and dress the guidance up as advice then it could cause more confusion as the average consumer isnt really going to understand the difference between guidance and advice.
The FCA have put together what appears to be a prescriptive format, with an onus on basic factual information and stressing the limitations of the service. The organisations are required to have a complaints management process for any issues that arise, which also has the option to refer to an independent assessor.
Other than delivering the service in a timely manner, the biggest potential risk would appear to be the guidance spilling over into advice, and inadvertently influencing the client's decision. Managing these risks will inevitably dilute the "personalised" aspects of the guidance.
It's interesting that the FCA have put the biggest burden for the payment of the levy onto advisers, on the basis that they are the ones who will most benefit from it. They seem very keen (on the surface at least) for the guidance to be a gateway to regulated advice for many people.
At the moment, in general, the compliance companies are scared stiff of the changes. There was already a fear that as PPI runs out that the CMCs will start cold calling people in other areas and try and mis-sell fake claims. The pension issue is ripe for them to say "have you been sold an annuity?" if yes, say they were mis-sold. If no, say they were mis-sold.
The way I see it, small values will just take their money in one go (even when they shouldnt. Medium money will probably mostly still buy annuity and larger money will go drawdown of some sort. Advice will be taken by many in the medium to large range probably on similar splits to it is now.
So that means impersonal "guidance" with an on-line flow-chart?
There must be a lot of people in the same position as Pincher (and myself) with relatively small 2ndry pots who are looking for the best outcome.
To avoid bias, the FCA should collaborate with the Open University. Come up with an adult education course, with videos and printed material. Put it online, so anyone who cares can watch the videos, and take the interactive self-test.
Those who fail the test multiple times will be nudged into having a "personal" session.