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Lack of guidance for pension savers risks freedoms ‘failure’, MPs warn

18 January 2022

A Work and Pensions Committee report calls on Government and regulators to play more active role in supporting savers to make better decisions about their money.

The Government should commit to trial of automatic Pension Wise guidance appointments and set a target of at least 60% needed to boost uptake of pensions guidance and advice 

Automatic appointments with the Pension Wise service should be trialled as part of a renewed commitment from the Government to support people to make better decisions in retirement, MPs say today, with the pension freedoms at risk of being seen as a failure unless savers start receiving proper guidance. 

The report on accessing pension savings from the Work and Pensions Committee concludes that although the extra freedoms introduced in 2015 have on balance been a success, many savers need more support than they currently receive. 

During its inquiry, the Committee was told by the Financial Conduct Authority (FCA) that consumers describe pensions as a ‘minefield’ with even those who felt financially confident in other aspects of their lives struggling to understand how pensions work. 

Pension Wise was established to provide the ‘guidance guarantee’ which was presented by the Government as a key pillar of the introduction of the pension freedoms, but the Committee concludes that, although it offers a good service, not enough people use it. 

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  • The Pensions Advice Allowance, which allows £500 to be withdrawn from a pension up to three times in different tax years for advice, should be overhauled with the annual limit removed and MaPS and advisers encouraged to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. 

Chair's comment

Rt Hon Stephen Timms MP, Chair of the Work and Pensions 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.  

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.”  

Other main findings and recommendations 

Options when accessing pensions (p12) 

  • Regulators should carry out a scoping exercise to establish the research and testing which could be undertaken on decoupling the 25% of a pension pot which is tax free from the rest of the pot and present their findings to the Committee.
  • More people would benefit from choosing a mixture of annuities, lump sums and drawdown so MaPS and the FCA should look to increase the number of people choosing a mixture of retirement products.
  • The Government should continue to support the development of collective defined contribution (CDC) schemes. 

Pensions dashboards (p48) 

  • Pensions dashboards have the potential to be the most influential policy in helping people take good decisions when they first access their pension pots. The programme must be properly resourced to get implementation right and ensure there is up to date data for every pension scheme. No consideration should be given to allowing transactions through dashboards until they are well established.
  • MaPS should develop a guidance service to help savers engage with pensions dashboards. 

Supporting decision-making before accessing pension savings (p52) 

  • The Committee is not convinced that the gains from a pension statement season, where schemes are required to send out annual statements, justify the complexity of introducing it. The Government must be prepared to adapt or drop its proposals if the benefits cannot be demonstrated.
  • The Committee welcomes the principle of a midlife MOT, where there is free support for people in their 40s, 50s and 60s to make plans about their futures, but calls on the DWP to undertake research to ensure the financial aspects of it works effectively.  

Wider government policy (p57) 

  • The Government should do everything possible to ensure that future changes to the pensions system do not bake in additional complexity. The DWP and Treasury should work together to monitor progress of the pension freedoms.  

The Committee’s inquiry on accessing pension savings was the second part of a wider inquiry examining the impact of the introduction of the pension freedoms in 2015. The Committee previous published a report on pension scams and is currently examining how people can be supported to plan and save for retirement. 

Further information

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