New pension freedom to choose "not enough" without support
19 October 2015
The Work and Pensions Committee says in their report that the "freedom to choose" reforms to pensions introduced in April 2015 are insufficient: people must have the freedom to make a well-informed choice. Not to have the basis for a well-informed choice could lead to the next major pensions mis-selling scandal. The Committee therefore calls on the Government to act swiftly in response to its report.
- Report: Pensions freedom guidance and advice
- Report: Pensions freedom guidance and advice (PDF 412KB)
- Inquiry: Pension freedom guidance and advice
- Work and Pensions Committee
Scamming and advice gaps
The Committee says pension freedom is not yet operating entirely as it should. Evidence to the Committee shows the advice and product markets are responding to fill gaps, but lack of regulatory clarity is endangering pension savers.
Improvements in guidance and advice are crucial to the success of the policy and the Committee will monitor progress closely. The Committee calls on Government to:
- Provide more anti-scam publicity and introduce stricter reporting requirements for pension providers
- Reduce the use of jargon and complex pricing structures for savers trying to withdraw funds
- Clarify the distinction between guidance and advice
- Clarify the definitions of safeguarded benefits
The level of charges themselves is an area of concern which the Committee may return to.
Need for statistics and research
The dearth of information about the use being made both of the new pension freedoms, and the Pension Wise guidance service, makes assessing progress very difficult.
The Committee repeats its call for Government to address these omissions urgently, and particularly to introduce a research programme tracking consumer outcomes.
However, it is apparent that take-up of Pension Wise has been lower than many anticipated. The Committee recommends:
- Stronger signposting to the Pension Wise service by pension providers
- That Pension Wise gives more personalised guidance incorporating an enquirer's wider financial circumstances, and improve its "static" website to incorporate interactive features like, at least, an income calculator
- The Government should come forward, soon, with a firm timetable for introducing an online “pensions dashboard”, which would allow people to see all their pensions savings in one place
Members call for action from Government
Frank Field MP, Chair of the Committee, said:
"Reluctance to provide information about how a reform or service is working is rarely a good sign. It is very difficult for the Government to support its claims that all is well, or for us to make any assessment of progress, when no data is forthcoming despite repeated requests.
These reforms have been in operation for six months now: it is evident that that has been long enough for the scammers to get going, working on defrauding people out of their life savings - it should be long enough for Government to have published some data about how the reforms and the attendant guidance and advice are working.
Good quality, co-ordinated and accessible guidance and advice will be the best tools to ensure people make the best, informed decisions about their retirement savings, and protect them from scammers. The Government must urgently provide some data about how this is all working, and close the gaps that are already apparent. We have seen all too clearly, too many times, what happens when financial information is not properly provided and regulated. We literally cannot afford another financial mis-selling scandal."
Richard Graham, Member of the Committee and Chair of the All-Party Pensions Group, said:
"The Committee supports pension freedom reforms and the evidence we heard was broadly positive so far about the provision of guidance, although we do question whether enough is being done by both government and contractors to publicise its availability.
We do also believe the Government, directly or indirectly, would want to commission in-depth research tracking consumer outcomes over time. People may be happy now with their decisions - and express satisfaction with Pension Wise services - but how they feel many years down the line is arguably more important.
In this brave new world of pension freedom information is key to ensuring the reforms are successfully implemented."