Can we force people to seek out guidance?

The party conference season is, thankfully, drawing to a close. With such a packed pension policy agenda there was never going to be a lack of subjects to chew over. One area always bound to come under scrutiny was the guidance guarantee. And at one fringe event, some were making the case for guidance to be compulsory – rather than relying on people seeking it out themselves.

I can see their point. The retirement market was broken. Before March, too many people ended up buying poor value annuities, probably on the wrong terms for their personal circumstances. But whilst the FCA took its time investigating why in a seemingly endless series of reviews, the Treasury steam-rolled in with a – dare I say it? – lucrative (for them) solution of just getting rid of annuities. Cos that’ll solve the problem right?

I’m not sure it did. And it certainly created a whole host of other problems.

People will now have the freedom to use their pension money in the way they see fit. The problem is, will they know what the best solution is for them? Or will they squander the money? Or hoard it in a poor investment? Or be fleeced in an inevitable scam?

The solution to this, of course, is retirement guidance and advice. Without these, I really don’t think pension freedom can ‘work’. But we need people to seek out and get the guidance they have been promised. And from there hopefully be encouraged in buying advice from a professional adviser.

But the signs, so far, from endless focus groups, aren’t great. Predictions of take-up of guidance range from 10% to 50%. We need to aim higher. But how do we do that? And that’s what led those in favour of compulsory retirement guidance to make their case.

But how do you compel someone to get guidance? One solution may be to bring in a requirement that unless the person has accessed advice then they can’t have a retirement product. But this won’t work on many levels. What happens if they aren’t buying a retirement product? And instead withdrawing the lot and squandering it on a new kitchen (although that doesn’t sound like ‘squandering’ to me)? Or putting it into an ISA? Or if a scam is involved I’m sure there will be devious slights-of-hand to bypass this new requirement.

Maybe instead we should have more draconian requirement that people cannot access their money until they have taken guidance. But are we seriously going to tell people they cannot get at their money? There will be outraged, and quite rightly so. In the end, compelling people to take guidance could simply mean they will be so put off acting they will leave the money where it is and survive on their basic state pension, when, in fact, they are entitled to a much higher retirement income.

Compulsion won’t work. We have to signpost and encourage people to get guidance. It won’t be easy. It will cost money. And results will start off poor. Guidance needs to be mentioned every time we say retirement. We need to ram it down our poor customers’ throats. We need to drag it up at each and every opportunity. We need it in big shiny lights on everything we ever do which mentions future income. And by ‘we’ I mean providers, advisers, trustees, consultants, employers, government agencies, regulators, media, social media, government departments, debt agencies, CAB and so on and so on.

This has to be a collective effort. Otherwise it won’t work.

And once we have successfully got people into guidance, we need the best method of getting them out the other side. Hand offs to professional advice need to be everywhere. The FCA needs to seriously think about the next steps people can take, and what role a new type of simplified advice could play. We cannot push people though guidance and then leave them washed up, gasping for air, and nowhere to go.

Guidance seems a simple easy concept. But it’s not. This is tricky. Very tricky. But we need it to work so the new pensions freedom can also work. Otherwise 2015 and onwards is going to be one big mess.