Bearing the cost of guidance guarantee – is Steve Webb right?

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Monday, 12 May 2014

I think Steve Webb's recent call for schemes to fund the cost of the guidance guarantee is misguided. When we talk about defined contribution (DC) schemes, in the vast majority of cases we actually mean DC members. That's something we need to be clear about - otherwise we are at risk of setting up a false expectation that there is a third party who is going to pay for this guidance. For most DC members, that third party is simply non-existent.

Then we need to think about what members are getting for their money. Another government proposal – the charge cap – comes into play here too. Don't get me wrong, a charge cap is a good way of ensuring member's receive value for money from their scheme, but we need to make sure the level is right. Forcing schemes to squeeze the cost of the guidance guarantee (and any other future bright ideas that may come along) within an existing charge cap could put pressure on other areas of service to the overall detriment to members. That would not be a good thing.

Wayne Phelan - Managing Director

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