Automatic pensions advice ‘will protect freedoms’
Pension freedoms which allowed individuals early access to their savings pot could prove harmful unless they are given greater guidance, according to a report from MPs.
The Work and Pensions Select Committee is recommending a trial of automatic appointments with the Pension Wise service to help people make better decisions.
The report on accessing pension savings concludes that although the extra freedoms introduced by Chancellor at the time George Osborne in 2015 have, on balance, been a success, the committee was told by the Financial Conduct Authority that consumers describe pensions as a ‘minefield’.
Even those who felt financially confident in other aspects of their lives struggle to understand how pensions work.
The committee’s report recommends:
- The government sets a goal of at least 60% of people to be using the government guidance service Pension Wise from the Money and Pensions Service (Maps) or receiving paid for advice when accessing their pension pots for the first time. At present, just 14% of defined contribution pension pots are accessed after the use of Pension Wise.
- The trial of automatic Pension Wise appointments. The government should initiate two trials: one with an appointment when a person accesses their pension for the first time and another at the age of 50, before they can access their pension savings.
- The Pensions Advice Allowance, which allows £500 to be withdrawn from a pension up to three times in different tax years for advice, should be overhauled with the annual limit removed and Maps and advisers encouraged to signpost its use.
Stephen Timms MP and chairman of the work and pensions select committee said: “From the introduction of auto-enrolment through to the continued shift from defined benefit to defined contribution schemes, the pensions landscape is in a constant state of change. It’s little wonder therefore that—as the government’s own financial regulator recognises—people struggle to navigate the pensions minefield.
“When the 2015 reforms were introduced the government guaranteed that savers would be given the tools they needed to take advantage of the new range of options and make well-informed decisions. Seven years on, guidance remains the missing piece of the pension freedoms jigsaw.”
He added: “Nudging savers will not be enough. The government and regulators can no longer just sit on their hands as decision making becomes ever more complicated.
“They must end their timidity and be much more active in supporting people as they approach retirement. We know that those who use Pension Wise find it useful and often make different choices as a result. Every effort should be made to boost its use.
“Without intervention to drive up dramatically the numbers receiving advice and guidance, savers will make poor decisions – and, in far too many cases, become scam victims – and the pension freedoms, far from living up to their name, will instead trap people in an increasingly confusing web of complexity.”
Reacting to the report, a Department for Work and Pensions spokesperson said: “We are committed to ensuring people have the support and information they need to make informed choices about their financial futures, striking the right balance between providing vital protections and informing pension savers, while also giving them freedom and choice about how to use their hard-earned pension savings.
“Our Stronger Nudge measures will require pension scheme trustees to offer to book a Pension Wise appointment for a saver, unless they actively decide to opt out of receiving guidance through a separate communication.
“Since November, our new transfer regulations have bolstered protections for savers by empowering trustees and scheme managers to halt a transfer request where they suspect it could end up in the hands of a fraudster.”