Customers 'not ready' for forthcoming changes
Royal London boss accuses Osborne of ‘political bungling’ over pension reforms
George Osborne’s forthcoming pensions reforms risk being known for “political bungling” because thousands of people will make the wrong decisions about their savings, according to the boss of one of Britain’s biggest life companies.
In the most damning criticism yet by one of the industry’s leading figures, Phil Loney, chief executive of Royal London, Britain’s biggest mutual life and pensions company, said customers are not ready for the changes.
He said they had been “thrown into place in an entirely unrealistic timescale” and too few people are taking advantage of the advice they are recommended to seek.
Royal London is one of Scotland’s biggest insurance companies following its acquisition of Scottish Life. Mr Loney’s comments follow those of Scottish Friendly yesterday which warned that a new mis-selling scandal was in the making.
Mr Loney said: “We wholeheartedly support the policy objective but customers are not ready for the new pension freedoms, which have been thrown into place in an entirely unrealistic timescale.
“I fear that many will make the wrong, often irrecoverable decisions about their retirement and this will result in some very poor outcomes. The simple fact is that many people, perhaps most, have not engaged with pension freedom and lack the basic financial knowledge to take the next steps.”
The Government has addressed this by setting up Pension Wise, a free and impartial service to help people understand their options, but too few customers are taking advantage of it, said Mr Loney.
“For the last three months of 2014 we included reference in our wake up packs to the services offered by The Pensions Advisory Service – TPAS. Of those customers without an adviser we found that surprisingly few people took up the offer to speak with the TPAS experts. Of the 3,600 letters we sent out in the final quarter of 2014, only 71 customers made contact with TPAS: a response rate of less than 2%.”
Royal London is now working with the government to find new ways of bringing the important issues to the attention of customers, but Mr Loney remains sceptical.
“I remain to be convinced that a new leaflet with a new logo, and a publicity campaign will dramatically improve response rates anytime soon,” he said in a statement this morning.
Meanwhile Citizens Advice report that they will only have a very limited capacity for face to face guidance in place for April.
The FCA has recently introduced the requirement for pension providers to ask additional questions about personal circumstances and issue risk warnings about the adverse consequences of some decisions.
“We believe that this belated intervention will not solve the problem. Most people have no idea how close they are to the next income tax threshold or how the detail of means testing for welfare benefits works.
“A high priority on the “to do” list of the next Chancellor and Pensions Minister must be to address the advice vacuum for middle market savers, with clear direction given to the FCA to make rapid and substantial progress. Without appropriate impartial regulated advice there is a very clear risk that many over 55s will make inappropriate decisions which land them with an unnecessary tax liability and an inadequate income to live on.
“George Osborne’s pension reforms have the potential to become famous for helping people to improve their retirement incomes but without plentiful and affordable financial advice they risk becoming an infamous example of political bungling.”
Royal London has meanwhile reported impressive figures that show an 83% rise in new group pensions life and pensions for the year as it picks up more auto enrolment business. Individual pensions business is up 25%.
Total group funds under management were £82.3 billion as at 31 December 2014, an increase of 12% on 31 December 2013.
Mr Loney said: “This is a particularly pleasing set of results. We have continued to move ahead in the individual and group pensions markets and have begun to see the results of some of the long term investment that we have made in our intermediary protection business. New business is coming onstream for our consumer protection lines too. I think that this demonstrates one of the benefits of our mutuality; we are able to invest time and effort in making sure our propositions are right for their market over the long term without the pressure of shareholders with short time horizons looking for a quick return on their investment.