04 Aug 2014

When is Advice actually only Guidance?

When is Advice actually only Guidance?

Colin Scott, Independent Financial Advisor, analyses the radical changes to pension legislation and how the advice given should actually only be seen as guidance.  

Colin Scott, Independent Financial Advisor, analyses the radical changes to pension legislation and how the advice given should actually only be seen as guidance.  

You may be aware of the radical changes to pension legislation which were rubber stamped by the Government last week. These changes are due to commence in April 2015. The changes include: 

  • Anyone of pension age would be able to draw as much (or as little) from their Defined Contribution pension pot as they choose at any time. 
  • 25% would still be tax free. The balance would be taxed as income in the year it's taken. 

It will represent the biggest shake up in pension legislation since pensions began - but people will need advice to solve an increasingly complicated retirement equation.

As with all things pension related the complexity of the changes and the knock on effect to personal taxation require the majority of clients to receive advice from a suitably qualified individual to ensure they are heading down the right road to retirement utopia. 

The Government have decided to introduce “The Guidance Guarantee” which will allow clients access to free impartial guidance on their pension income choices, provided by the Money Advisory Service and the Pensions Advisory Service. This may sound ideal however the key word is GUIDANCE. Already many newspapers have mistakenly substituted the word guidance for the word advice. This small error makes a massive difference as guidance and advice are two entirely different things and should not be confused. 

The Government Guidance Guarantee is to start from April 2015 and while it will allow individuals to get free guidance it must be pointed out that this will not constitute advice. It is thought that the guidance will take the form of decision trees and “signposting”- hardly ideal when making a decision that will impact the rest of your life!  

The Financial Conduct Authority has stated in its consultation paper that “Guidance does not replace financial advice given by regulated advisers”. Perhaps they should tell the public that. 

People heading towards retirement need sound advice from a qualified adviser and this does not change from April 2015, in fact the changes make it even more imperative that proper professional advice is taken and ongoing reviews of your retirement income are undertaken to ensure that retirement is as comfortable as a client needs it to be.  

So, in summary, guidance is not advice and clients should start planning for these impending changes now, discussing their retirement plans with an Independent Financial Adviser. 

Colin Scott  DIPpfs  ACIBS, Independent Financial Adviser


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