By Kevin LeGrand
The guidance guarantee as proposed is of very limited value. It may be a useful guide to options in the limited context of the options available under the scheme once a member reaches a single fixed retirement date. But it cannot replace good quality advice which should take account of wider issues, such as the member’s tax position, other wealth of the member and their partner and whether the member intends to continue work in some form.
In order to generate good outcomes from a defined contribution (DC) scheme the member needs to have planned and revised their pension throughout their working lifetime, and implemented investment and other decisions accordingly. In that respect, a single piece of guidance, with limited focus, doesn’t cut the mustard.
There is a danger though, that the proposed guidance, as “approved by the government” will be seen by many as sufficient to enable the appropriate decisions to be made on all aspects of their retirement, and from which “good outcomes” will necessarily result.
The provision of expert help for members of DC pension schemes is essential to their success. We welcome the government’s proposal that even this limited version of guidance should be provided by several independent organisations. This should encourage the maintenance of standards, and also address the issue of available resources. The number of people eligible for this guidance could be as high as 400,000 per year, and it is unlikely that any one organisation would be able to cope with this number on its own.
Growing numbers of members are retiring in stages, with reduced working weeks and the resulting reduced remuneration supplemented by payment of some of the accrued pension. The new options proposed in the Budget alter the tax system to catch up with that trend, so restricting the guaranteed guidance to a one event only when “approaching retirement” undermines the changes.
The Budget changes are a further step in the movement away from the old fixed norm. With the new flexibilities, the old two-step approach (before and after a single fixed retirement date) disappears. This opens up many possibilities around blending work and retirement. To get the most from the new flexibilities, decisions will have to be made and reviewed throughout the member’s lifetime; investment decisions will in future have to reflect the whole period of membership until death. How does that fit with the concept of a single guidance event “at the point of retirement?”
Kevin LeGrand is head of pensions policy at Buck Consultants
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