Davy attacks Opperman's 'backward' £25k consumer detriment move Davy attacks Opperman's 'backward' £25k consumer detriment move

12 Jul 2017

Davy has attacked the announcement, arguing more than a million less well-off consumers could lose up to £25,000 of value by opting to take GAR pots as cash without advice.
Last week the Government laid down legislation to remove the requirement for advice on pots with GARs.

But Davy is calling for pension providers to be required to give consumers wishing to access GAR pots an advice allowance of £500 to help them with their decision, arguing this will be more than paid for by the windfall providers will receive when GARs are surrendered. Davy says a £30,000 pot with a GAR could be worth £55,000.


Davy says: “This is a backward step which will potentially damage the financial outcomes of over a million less well-off consumers. It completely ignores the fact that at age 65, a £30,000 pension pot with a typical GAR has a real value to an individual of around £55,000. Telling these less well-off consumers that they don’t need to take advice is tantamount to the Government saying it doesn’t care if they end up with worse outcomes.


“Parliamentary under secretary for pensions and financial inclusion Guy Opperman told parliament this proposal will save consumers at least £900 in advice costs, without any explanation of where that figure comes from. Nonetheless, the potential loss to the policyholder could easily be as much as 25 times more than this cost. Conversely, this change will deliver an absolute bonanza for the pensions companies currently sitting on an estimated 1.5 million policies, which include the valuable benefit of a GAR. Many of these policyholders are already disadvantaged by being invested in closed funds or zombie companies.


“Take the example of a fund with a face value at 65 of £30,000, which, because of its GAR, has a real value of £55,000. If the individual opts to take the cash, instead of benefiting from the GAR, the insurer enjoys an immediate windfall profit of the actuarial difference between its face value and the real value. I am not saying that taking the cash will necessarily be wrong, as, without advice and consideration of the client’s circumstances, it is impossible to know. What I am saying is that, as an absolute minimum, the proposed letter from the insurer to the client should alert them to the real actuarial value of the GAR in cash terms.


“Indeed, I would go further and urge the Government to insist that the insurance company provides the client with a voucher of at least £500 to ensure that he or she can be given basic advice on the important options they should consider before simply grabbing the cash. This modest cost for the pension provider will be covered many times over by the windfall profits they will make from clients who choose to ignore the valuable benefit the GAR provides and grab the cash. I believe this is an important issue, which will seriously disadvantage a large number of poorer consumers who need advice if they are to maximise their finances in retirement. This issue needs to be reconsidered by the Government and the FCA without delay.”

Announcing the new measures, Opperman said: “I want everyone to have freedom and choice when it comes to financing their retirement plans and this includes being able to choose whether or not advice is right for them.


“The steps we are taking will empower savers to take control of their options whilst still receiving the right level of information from their providers. “Financial advice is not a one-size-fits-all industry and I will always be on the side of hard working, responsible savers and anyone looking to have greater choice over their money.”


Testimonials

"In a world of image-is-everything, I have come across many a recruitment agent over the years. Promises not fulfilled, comments not substantiated, systems/procedures that don't manifest themselves. Instead what I have found with you and SimplyBiz is, above all, integrity. What you have said has been based on experience and knowledge and, accordingly, has been based on facts. Facts that have, of course, transpired to be true. The ability to rely on those who know what the DA application process is all about is impossible to cost, but important to value."

Derek Avenell
Hawthorn Financial Services

Read More

Latest News

Liz Coyle: Your Senior Managers & Certification Regime refresher

May 17, 2018

Liz Coyle, Compliance Policy Manager for The SimplyBiz Group, recaps the key aspects of next year's big rules change.

Read more >

SimplyBiz Group's Centra investment system has attracted 1500 users

May 14, 2018

Dan Russell, MD of SimplyBiz Investment Services, expresses his delight with the speed and enthusiasm with which Centra, the end-to-end investment service, has been embraced by advisers.

Read more >

"Ending 'phoenixing' is a matter of political will"

May 10, 2018

The government minister, Robert Jenrick, recently highlighted that the practice of ‘phoenixing’ can be deeply corrosive to public trust in the system which is progressively passed on to the whole of our economy. While this is undoubtedly true, what I find so depressing is that after all these years the debate had to take place at all.

Read more >

PA360: Financial advice faces recruitment 'double challenge'

May 08, 2018

Tom Hegarty, Managing Director of NMBA, considers the current challenges facing recruitment into financial advice given the decline of the traditional entry points.

Read more >