Our views on Pension Wise; the government's pension guidance guarantee


Our views on Pension Wise; the government's pension guidance guarantee

The trade papers for financial services have announced that the Pension Wise service has now been launched and is looking for feedback. If you do a Google search, there are two significant entries, one at https://www.gov.uk/pensionwise, and the second at https://www.pensionwise.gov.uk.

The first one, https://www.gov.uk/pensionwise, says very little, I would suggest it is a placeholder for an extended entry in April, when everything is in full swing. What it does do is signpost that further information is available from government sources, including the state pension information service, The Pension Advisory Service, TPAS, and the Money Advice Service, MAS. All of this is worthy, useful information, but hardly groundbreaking.

The second, https://pensionwise.gov.uk, describes itself as a BETA version, so it is not the final product and it is open to feedback. Having read all of the pages, it is carefully written in fairly plain English, but there are no flashes of insight or suggested norms to follow.

The core of the site uses a six stage process that is clear and straightforward to follow. The stages and my comments follow:-

1. Check the value of your pension pot

This explains how to check your pension fund total, look for lost pensions and explains that you can combine various funds and take them at different times. What it does not tell you is the impact on costs of taking funds at different times. Costs within annuities and investments in general are often stepped, with larger investments having proportionately lower costs than smaller amounts.  

2. Understand what you can do with your pension pot

This contains a concise and clearly written explanation of all of the options and suggests that you can mix your options but makes very little comment on the role of investment risk within the various choices.        

The Financial Services Compensation Scheme, (FSCS), guarantee of 90% for annuities is mentioned, but the consequences for spending all of your money at once or losing it in poor investments is not covered. To me, this is a fundamental elephant in the room!

3. Plan how long your money needs to last

Useful as it is, it does not address issues about longevity, but confines itself to questions about when to retire and whether to work more flexibly, makes a few bland comments about health costs and infers that only the State Pension is likely to increase over your lifetime.       

In general*, most people underestimate their longevity, which has a bearing on the level of income you should take, can take or can afford to take. Inflation will also have a bearing on the value of the income taken, especially in later years. 

4.Work out how much money you'll have in retirement

This gives a process for calculating your likely income in retirement and provides some warnings about debt and spending too much money too early. It makes a clear statement about not forgetting the impact of taxation and a less clear one about the change in costs in retirement. 

5. Watch out for tax

This section is a clear statement of the impact of tax on pension income. What it infers but does not make explicit is taking all of your pension fund as cash in the first year is likely to carry a significant tax penalty. 

6. Shop around for the best deal

This gives advice on the various pension income products available, suggests you check for guaranteed annuities, cautions you about taking too much income from flex-access drawdown plans and suggests where you look for financial advisers and the questions that they may ask. It also warns you that annuities have a very limited scope for cancellation, 30 days, and that once in place, cannot be cancelled outside of the cooling off period. 

It does suggest 6 times on the one web page that you talk to a financial adviser and gives guidance where to find one and what to check for.

As independent financial advisers, we welcome the new Pensions Wise website, but we would suggest that it is not an alternative to independent, professional, regulated financial advice but a way of getting the best value from your adviser. If all you have in the world at retirement is £30,000 in a pension scheme, then there will not be too many realistic choices and having debt could reduce those choices still further. For those with more than £30,000, I would suggest that Roz Altmann’s blog of 23rd August 2013 is as valid now as it was then;

“What would you expect to cost more – paying for a chauffeur driven limousine to take you to your desired destination, or buying a bus ticket and finding the way yourself?  Or what do you think would cost more – having a travel agent put together an itinerary for you holiday after discussing what you want, recommending the best hotels, booking it all for you and arranging the tickets, or going on-line to check out all the information on your own, find the best flights and hotels, book all the transfers and tickets yourself?  When it comes to annuities, the do-it-yourself option can be the same price or cost you even more!  Using an adviser is not a waste of money.  It is a really important element of making the right decision for yourself and your loved ones in retirement.”

http://pensionsandsavings.com/annutiies-and-income-drawdown/the-crazy-world-of-annuities-hiring-a-chauffeur-driven-limousine-cheaper-than-finding-your-way-by-bus/

*******

If you would like to know more about how we can help you plan and realise your financial goals then contact us at info@martin-redmanpartners.co.uk or call us on 01223 792 196.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.

*David Robbins, Towers Watson, quoted in http://www.bbc.co.uk/news/uk-politics-27062273