This is a blog about pensions. So stop searching for your first profile picture to post on Facebook, stop watching the hilarious video of the cop singing along to Taylor Swift, that can wait – what I’m about to say is more important (you can always watch the funny video afterwards, it’s worth it).
If you’re retiring this year and planning on taking your pension post-April when the new pension freedoms come into force (or even if you’re not), it’s crucial that you understand the difference between guidance and advice.
This became abundantly clear to me following a discussion on pensions I attended last week. A question from the floor asked the panel of pension experts to explain the distinction between the two. Their answers were confusing and they appeared to be having trouble doing so. It made me think: “If a panel of experts is struggling to differentiate between what guidance and advice means when it comes to pensions, what chance do consumers have?”
But let’s rewind for a second to put everything into context. In his Budget last year, the Chancellor announced changes to pensions the likes of which have never been seen. In a nutshell, instead of having to take an annuity when you retire – a product which gives an annual income each year until you die but which has provided notoriously poor returns – come April you’ll be able to take your pension however you like.
As part of these changes the Government has set up a service it recently coined “Pension Wise” (read the news story here). Its basic function is to give people guidance (and guidance being the operative word here) on how best to take their pension under the new freedoms.
The distinction between the two words and their meaning is especially confusing when you consider that consumers will be offered this guidance by organisations such as Citizens Advice – which in the regulatory sense, cannot actually give advice when it comes to pensions, just guidance. You can see how there could be some confusion.
So this is the part that you really need to pay attention to…
If you’re planning on taking your pension post-April, you will be offered free guidance either online, over the phone, or face-to-face. But this is guidance, it is not advice and whatever decision you make is yours and yours alone, meaning you’re liable for whatever choice you end up making.”
A neat analogy used by one of the panel members might help put this in context…
Imagine Joe asks how to get from London to Brighton. If Jane gives him a map/sat nav/app to download and then says ‘there you go, it’s up to you to find your way’, any mistakes Joe makes are his own fault (guidance). If Jane says ‘no worries, I’ll get a taxi to pick you up and take you from London to Brighton’, any mistakes made are out of Joe’s control, he’s relying on the taxi driver to take him to the right place (advice).
Possibly the biggest difference between the two though is money. The guidance that you’ll be offered by the Government schemes is free. If they then point you in the direction of financial advice, or you choose to take this, you will pay for it (see the Financial Advisers guide for more).
A whole raft of other questions came up in relation to the difference between these two terms, such as…
- What do we do for the people that don’t want to take the guidance, is there a default product for them?
- What happens if the people giving guidance get overexcited and stray into the realm of advice and the advice they give is bad – what redress does the consumer have?
- What happens to the people that have small pensions and don’t just want to take a lump sum, but can’t afford to pay for advice?
I’m aware that this blog is already quite long, so I won’t try and give the answers to these today. Instead I’ll keep blogging on pensions up until April to give you all the information you’ll need when it comes to making one of the most important decisions of your life.
In the meantime, if you’re concerned with any of this, or what to do with your pension after April, then please do get in contact and let me know your opinions in the discussion below or in the forum.