James Daley

By James Daley

Back in March, when George Osborne made his promise of offering free face to face financial advice for all those approaching retirement, I was encouarged. Deciding what to do with your money when you retire is one of the most important financial decisions you have to make - and with trust in the financial services sector at all time lows, and the cost of advice perceived to be high, few people get the help they need.

Of course, Osborne's proposal was unlikely to be deliverable - at least not without great cost. Almost all high street banks have withdrawn from offering face to face advice, as they can't make the sums add up. So any government plan to provide this on a mass scale was unlikely to be affordable - especially in an age of austerity. As most industry observers rightly guessed at the time, this could not be full regulated "advice", where customers would be told what's best for them. Instead, what was more realistic was some form of "guidance", which would enable people to make the best decisions for themselves.

Guidance not advice

Earlier this week, Osborne confirmed that a combination of the Money Advice Service, Citizens Advice Bureaux, The Pensions Advisory Service and other non-profits would be behind the delivery of the guidance - and the cost would be borne by a(nother) levy on the financial services industry. While this sounds great in principle, there are now some very tough decisions to be taken between now and April if the pensions guidance on offer is to be of any use.

When it comes to retirement, there are few "right" answers. If the guidance sessions could start with an accurate forecast of the date that we will die - as well as details of what inflation, interest rates and investment returns will do between now and then - it would be easy enough to give some robust advice on what we should do with our money. But given that none of these factors can be forecast, any guidance that is given will invariably have to come heavily caveated.

Nevertheless, if the guidance is to be of any use at all, it will have to at least make a few assumptions - and this is where the controversy will lie.

The power of government decree

At what point will your pension pot be deemed to be too small to be worth buying an annuity or investing with? The guidance surely can't simply say that people with "small pots" should not bother with an annuity - it will have to define small.

There will also be an issue around how referrals are made onto professional independent financial advisers. For those who have pots over a certain size, the right guidance will be to send them onto a financial adviser - but this opens a whole can of worms. Most people have no clue how to find a reliable IFA, so where will the advice services send them? Perhaps trickier still will be the group of people who will be suited to buying an annuity. Advice on whether to go for single or joint life, index-linked or level, and whether to opt for a guaranteed period at the start are all tough choices. If all the guidance does is outline the pros and cons of each of these suggestions, it's likely to leave customers overwhelmed.

The purpose of offering free guidance is surely to get as many people as possible making the right decisions as they enter retirement. Given that the guidance services will not be able to go as far as making personal recommendations, I'd suggest that they will probably be most useful if they help refer people to someone who can complete the job.

Given that the government and its associates feel uncomfortable giving any kind of specific advice on how to find the right advice at the right price, the risk is that the guidance project will not achieve its goals - and many people will sleep walk into the wrong decision. The opportunity is still there to provide something transformational. I hope the chance is seized.