Pension Schemes Bill

Written evidence submitted by the Equity Release Council (PS 04)



The Equity Release Council is the industry body for the equity release sector. Born from an expansion of the remit of SHIP (formerly Safe Home Income Plans), the Equity Release Council represents the providers, qualified financial advisors, lawyers, intermediaries and surveyors who work in the equity release sector. The Council has nearly 350 members.

The Council welcomes the opportunity to provide a written submission to the Pension Schemes Bill Committee. The overall message the Equity Release Council would like to convey to the Committee is the need, following the pension reforms, for people to be able to access holistic, personalised advice which takes into account all sources of wealth for retirement, including housing wealth, to help them decide on the best options for funding their retirement. Some estimates put the housing wealth in the hands of older people in the UK at £1.4 trillion.

The Government has announced that measures to introduce a 'guidance guarantee' will be introduced in the autumn via amendments to the Pension Schemes Bill. The Council would like to urge the Government to think not just about pensions, but about the full range of options for funding retirement. We would also like to emphasise the need for advice to be distinct from guidance. There is a fundamental difference between the two, and if the pension freedoms announced in the Budget are to be truly successful, this must be recognised.

1. The Equity Release Council has engaged extensively with the new pension proposals , particularly the guidance guarantee, since they were announced at Budge t 2014 . We are aware that the guidance guarantee is not included in the Bill presently; however given that successful implementation of the guidance guarantee is vital to successful implementation of the overall reforms, and that the Government has noted its intention to bring forward amendments during Committee stage, we will seek to address this in our response.

2. We would like to strongly emphasise the importance of impartial guidance for those nearing retirement. While many people will still find that an annuity is the best option for them, an increased range of choice will mean that more people will benefit from help with planning their retirement. Therefore, we very much welcome the guidance guarantee.

3. Pensioners now have even greater autonomy in how they manage their retirement savings, so it has never been more important for people to receive help and guidance to be able to fully understand the options available to them.

4. We would emphasise that there should be a clear split between guidance – as provided for in the guidance guarantee - and advice – in the sense of regulated financial advice on specific products with the appropriate point for the hand-off to advice made clear. The guidance guarantee must ensure that people are able to access professional independent financial advice where it is appropriate for them to do so, for example if they want to access more complex products. We look forwar d to more detail from HM Treasury on how the guidance guarantee will operate.

5. During our engagement with the Care Act and related consultations such as Caring for Our Future, we emphasised the importance of access to regulated financial advice given by a qualified adviser who is regulated by the F inancial C onduct A uthority (FCA) , and has appropriate expertise in older people’s issues – particularly when taking out complex financial arrangements such as deferred payments arrangements . Given the complexity of a number of retirement products, and the fact that people approaching retirement are not always in a good position to understand the impact of their current decisions on their later life, people should have access to expert advice where they need it.

6. The Equity Release Council welcomes the suite of "principles-based standards" proposed by the FCA, which the delivery partners who will be providing the guidance must comply with. The proposed standards provide a suitable structure for the delivery partners to provide impartial guidance for those nearing retirement. We welcome the aim of the "principles-based standards" to recognise the importance of impartial, consistent and good quality guidance to create consumer trust in the delivery partners. We also welcome the fact that the standards specify the difference between guidance and advice, placing a duty on the delivery partners to signpost consumers to the appropriate specialist advice service according to their circumstances.

7. Members of the Equity Release Council abide by a similar set of "principles-based standards" to ensure that their customers are fully aware of the implications of using housing wealth as a source of income in later life. The Council recognises that access to information and guidance is absolutely essential for people to properly understand how equity release can help them – this is reflected in the code of conduct that members of the Council must comply with. We strongly believe that our standards provide a valuable point of comparison for the rest of the financial services sector when looking to develop the guidance guarantee.

8. We are particularly keen to emphasise the need for the guidance provided by the delivery partners to take into account all sources of wealth, including housing wealth , when planning for later life. We would note that the FCA’s proposed standards are heavily focused on pension savings as the only source of income in later life. Equity release provides an alternative source of income which can help supplement retiree’s standard of living. I ncreasing numbers of over-55s are look ing to draw upon on the wealth contained with their home to achieve financial security and stability in later life. (Some two-thirds of equity release plans are for drawdown rather than a single lump sum).

9. Housing equity is now increasingly playing a greater role in supporting older people in later life, as it continues to be the most significant asset for many people - often more than their defined contribution pension savings. For many, unlocking the wealth tied up in their property may be a more viable and appropriate option than an annuity or insurance policy, or may complement other sources of income.

10. Our autumn 2014 Equity Release Market Report reveals that in the first half of 2014, the average amount of housing wealth held by those over the age of 55 was £271,293. The average amount lent under an equity release policy increased 12% to £63,741, compared with the first half of 2013. To place this in context, the average DC pension pot is about £20,000. So there is a whole generation of people for whom their housing wealth will be more significant than their pension savings in securing a comfortable retirement.

11. Another issue which needs to be considered is the timing of the guidance provided. Ideally, guidance should not be a one-time event. Initial guidance should be provided five to ten years before retirement to allow people to start planning (for example, increasing numbers of people will want to consider working beyond 65, in part to maintain their family finances), with further guidance just prior to retirement. People then should have access to guidance at key points during their retirement, allowing them to consider their options as their circumstances change – for example if they are considering taking out a new product, such as equity release, to provide additional income, to improve their home or if their care needs change, or make adaptations to their home so they can remain in their own home for longer.

12. If, as the Government hopes, new products come onto the market in response to the changes to how people access their retirement funds , people may wish to reassess their options part way through their retirement. Therefore, guidance should be available at various points during retirement, to ensure that people are continuing to get the best deal for their circumstances.

13. Finally, a further issue we would welcome further clarification on is which body will be responsible for accrediting the guidance providers – and on how the FCA will enforce the standards which are set. Consumers are concerned to ensure that the guidance they receive is impartial, but also that it is sound guidance delivered by advisers who can demonstrate their competence in this area. There will be a need to ensure that advisers have a broad knowledge of issues relating to retirement and later life planning and that they know when to refer consumers for more specialist advice. T he structure of financial advice qualifications means that many advisers will not be qualified to give advice across the full range of areas relevant to older people (or may not have the relevant permissions from the FCA).

14. In summary, we are keen to ensure that the amendments brought forward by the Government in relation to the guidance guarantee recognises the following points:

· The amendments provide clarity on the distinction between advice and guidance, ensuring that people are able to access professional independent financial advice where it is appropriate for them to do so.

· The guidance provided is fully holistic and considers all forms of funding for retirement – including housing wealth.

· The need for further detail on the accreditation of the guidance providers and the enforcement of the principles based standards.

· The timing of the guidance, including the potential to provide guidance from age 55 onwards and to provide the opportunity for further guidance should people’s circumstances change during retirement.

October 2014

Prepared 22nd October 2014