The Financial Services Consumer Panel has called on the Government to initiate a system for all pension savers to receive free independent financial advice before they make any decisions about turning their pensions savings into pension income.

In its response to the Government's recent consultation on annuities the Panel has highlighted that, although the government encourages pension savings by income tax subsidies, much of the benefit of these subsidies is whittled away - consumers make a poor choice of annuity purchase in the absence of advice about this very complex subject. Consumers do not understand the choices open to them, and therefore government should ensure that an advice system is in place which enables a better use of the public funds being diverted into this area. The Panel suggests two options on how to do this:

• To raise a levy on all pension providers to fund some form of voucher or 'green form' scheme (as is available with legal advice) that would encourage pension savers to seek advice and give them flexibility as to who they obtained advice from;
• To raise a levy which is used to fund the establishment of an independent charitable trust whose job is to provide free advice to consumers at the time they have to make important decisions in respect of their pension savings.

Currently insurance companies make a deduction from pension savings to pay commission for advice on annuity provision, irrespective of whether or not customers take up the advice provision. This money could be used for the levy for independent advice, or if it is not sufficient, the Government should be prepared to make a contribution with a view to ensuring that its earlier income tax subsidies are of maximum benefit to consumers - rather than ending up in the hands of insurance companies.

Colin Brown, Panel Chairman, said
"The Consumer Panel's view is that access to independent financial advice is vital in all areas of financial services. But in the case of annuities, it is not only the individual consumers who are losing out - it has a knock on effect on everyone as government subsidies are in effect being wasted. Unless consumers are given the right advice they will not be able to make maximum provision for their retirement. It is an area which the Government must address."

Enquiries
Media: 020 7066 0902
Publications: 020 7066 3298

Notes to editors