The difference between pension guidance and advice

In 2014, when George Osborne announced the changes in the Budget, he made the highly appealing declaration that everyone approaching retirement would be entitled to free, face-to-face advice. In the weeks that followed, this was changed to free guidance. Many people were unaware that there was a difference between pension advice and guidance, but they are significantly different. Guidance may be more appealing because it is free, but it should not be mistaken as equal to professional, regulated advice.

What is guidance?

• The government has pledged to provide free guidance for retirees (the Guidance Guarantee)
• It will be provided face-to-face, online and over the phone by the Money and Pensions Service and the Citizens Advice Bureau
• Guidance is essentially an overview of the available options on the market, not necessarily options available to individuals. For example, guidance may mention enhanced annuities, but you might not be eligible for one
• Guidance is intended to provide generic information on the range of options, giving you questions to ask a regulated adviser
• Guidance does not offer guarantees on the decisions you make, so choosing guidance because it is free can be a false economy if you lose money on the wrong decision

What is advice?

• Advice is not covered in the Guidance Guarantee
• People that want advice will need to fund it themselves
• Advice is tailored to each individual
• Whereas guidance tells you all the options available, advice tells you which would be most appropriate for you
• Advice takes into consideration your current situation, the size of your investments, your goals and explains the potential risks and benefits of various options
• Independent advisers can explain all types of investment products, whereas restricted advisers are more focused on specific products, providers or both
• If you receive wrong advice and lose money you can talk to the Financial Ombudsman Service or Financial Services Compensation Scheme for reimbursement
• The Financial Conduct Authority (FCA) has a database of regulated advisers to help you find the best advice

Knowing the difference between guidance and advice can help you make the most of your money. Guidance is particularly useful for people who need an introduction to the various options, whereas advice will help you choose the most appropriate ones unique to your circumstances needs and goals.