JLT Employee Benefits (JLT) is calling on the Government to carefully consider how it implements its retiree guidance guarantee programme. Under the current proposals, JLT sees a danger of inadequate guidance resulting in many people accepting accelerated drawdown and potentially running out of money. To help prevent this, it is vital that guidance is accompanied by illustrations that clearly demonstrate the potential consequence of different decisions.
This is one of the key recommendations – one of nine – outlined in JLT's white paper, unveiled today at a fringe event at the Liberal Democrats party conference with Steve Webb, Pensions Minister. The white paper, entitled 'The New Pensions Landscape', reflects on the radical changes to the pensions landscape, especially the new pensions flexibility announced by the Chancellor in the Budget, introduced as part of the current coalition Government's retirement reform agenda.
Despite concluding that the Government's package of reforms will help secure a better chance for more people to achieve good retirement outcomes, JLT has highlighted concerns regarding a number of issues, most significantly around the provision of guidance, and has dedicated three of its key policy recommendations to this topic, listed below:
Guidance must be accompanied with illustrations to bring it to life and make it more meaningful for the consumer – just telling people what their options are when accessing pension savings is not enough. The free and impartial guidance available to DC savers must be accompanied with illustrations to demonstrate different probabilities of a given level of income lasting for life, or for a certain period of time.
There needs to be more encouragement for employers to deliver pre-retirement guidance through the workplace, including ‘safe-harbour’ laws to facilitate pension discussions without fear of being sued for giving advice – JLT believes that schemes and employers are best placed to supplement the ‘guidance guarantee’, and it is crucial that employers are encouraged to deliver this support through the workplace without worrying about straying into the arena of advice and FCA regulation.
A recognised qualification should be developed for those delivering guidance, whether as part of the guidance guarantee or commercially. Individuals providing guidance (as part of the guidance guarantee or otherwise) must have the necessary skills and experience. Consideration should be given to independent accreditation of the Delivery Partners. Continuing professional development is essential.
Commenting on the report's findings, Mark Wood, CEO of JLT Employee Benefits, said:
"There is no doubting that the landmark pension reforms introduced under the current Government represent significant progress in helping people achieve better retirement outcomes. However, the recent reforms also present dangers that will need to be addressed if we are to avoid inadvertently misleading individuals into making choices they later come to regret. As part of its suite of reforms, the Government has pledged to offer guidance, under its guidance guarantee proposal though it has yet to reveal what exactly this guidance will entail and, critically, what it won't. Further, the removal of a default option at retirement will likely lead to confusion for many people and inertia at the point of retirement, so clarity, and illustrations showing the financial impact of various retirement options, will be key.
"We believe it is important that employers are involved in the provision of guidance, and that they are brought in at an earlier stage than currently planned. For many, guidance at the point of retirement will come too late. Guidance through the workplace, offered at various stages through an employee's career, seems to be the most effective way of securing favourable retirement outcomes."