Witten evidence from Citizens Advice (PFC0061)

About Citizens Advice

Citizens Advice is a national charity which delivers advice services from over 2,700 community locations in England and Wales through 292 independent local charities. Last year we helped 325,000 people to make informed decisions about pension-related issues: 100,000 sought our help through our local services (including Pension Wise) and 225,000 visited the pension pages on our website. We have been delivering the Pension Wise service for 2½ years, and last year delivered 38,000 face-to-face appointments.

We support the principles behind the pension freedoms. Greater choice gives real opportunities - but it also poses risks to consumers. We want to help ensure that consumers receive the guidance and advice they need to make good pension choices. Our decades of experience in helping people to understand their options on complex issues gives us deep insight into the most effective ways to achieve this.

Executive summary

Our key messages for the Committee are:

1. Pension Wise is working well for consumers. Satisfaction rates are consistently over 90%. Demand for the service has increased by 10% each year. After using Pension Wise, 93% of consumers felt informed about their options and 94% felt confident in their ability to avoid scams.

2. Demand for pension guidance is increasing, but too many people don’t get the help they need. Broadening Pension Wise to target people at key life moments would encourage more people to get help with their pension choices.

3. More people would access guidance if the offer was more holistic. Pension Wise guidance should be broadened to include accumulation guidance, guidance on the whole of people’s pension pots, and should be joined up with other advice and guidance services.

4. The guidance offer should be underpinned by a range of tools to help consumers to navigate the complicated pension market, such as an independent drawdown comparison tool and the proposed pension dashboard. These should be based on user needs and integrated into the guidance customer journey.

5. Beyond advice and guidance, regulatory changes would also protect consumers from scams and help them make the most of their pension savings. Our recommendations include increasing protection against scams with a ban on pension cold calling, and capping exit fees to make the market more competitive.

1. Pension Wise is working well for consumers

1. Pension Wise is a trusted service for consumers seeking free and impartial guidance about their defined contribution pension. The Pension Wise dashboard placed satisfaction rates at 90% for July 2017[1] and Ipsos MORI’s recent survey into the service found that 94% of customers who completed appointments with Pension Wise were satisfied.[2] The latter also found that 97% of customers had, or were likely to, recommend Pension Wise to others - which chimes with other customer survey research into Pension Wise carried out by Just Group.[3]

2. Pension Wise is meeting its objectives. One in nine people used the service to find out more about their pension options and the same proportion believed their understanding of their pots had improved as a result of an appointment.[4]

3. Ipsos MORI’s survey highlights the importance of guidance. Just 56% of non-users felt informed about their options, in contrast to 93% of consumers who felt informed after they used the service. Guidance also increases consumer confidence in dealing with scams. 94% of Pension Wise users felt confident in their ability to avoid scams, compared with 80% of non-users.

4. Ipsos MORI’s research also indicated that people appreciate the range of channels. More than two thirds of face-to-face users said they generally preferred face-to-face interactions and almost six in ten preferred talking face-to-face when specifically discussing financial matters. A quarter said they preferred a face-to-face appointment as they wanted to discuss paperwork.

5. Pension Wise positively influences consumers’ decision-making after they used the service. Ipsos MORI found that 70% of consumers spoke with their providers after having an appointment, of which nearly nine in ten felt well prepared. An appointment also makes consumers more likely to take steps to make informed decisions. This includes calculating retirement income, talking to providers, shopping around for quotes, researching tax consequences and looking at investment options.

2. Guidance should be available at key points in people’s lives

Pension guidance is important

1. Pension decisions are high-value, complex, and infrequent. At the same time, most consumers are unwilling or unable to pay for independent financial advice on a decumulation decision. Our research found that just 2% of consumers said they would pay between £1,000 and £2,000 for one-off advice in this situation - the amount it would cost to secure a flexible income from a £61,000 pension.[6]

2. Our research with consumers shows that many recognise they need support with managing money. In nationally representative polling, equivalent to 13.5 million UK adults said they found making financial decisions very challenging.[7] Recent research by the FCA made similar findings.[8]

3. Guidance is important both for individuals and the market more generally. For individuals it means they are more likely to make good pension choices - to choose a product that’s right for them, spot pension scams, and avoid unexpected outcomes such as a high tax bill or high annual charges. For the market as a whole, guidance can help people shop around which could ultimately improve competition.

Not enough people get pension guidance

4. Not enough consumers are getting help with their pensions. Our research carried out after the introduction of pension freedoms showed that almost a third of consumers do not get any help with their choices. Worryingly, the lowest household incomes make up half of the group of consumers who do not get any support with their choices.[9]

5. While the majority of consumers told us they got some support, since the reforms, one million pension pots have been accessed in some way, but only 161,000 consumers have had Pension Wise appointments.[10]

Guidance should be made available at more points in people’s lives

7. Better designed ‘wake-up packs’ or pension passports and more publicity can only go so far in encouraging more people to take up pension guidance. Pension Wise should build on insight from other areas of advice and guidance provision by using a range of triggers to encourage people to seek help. Our research on money guidance found that up to 23 million people said they would have taken advice or guidance if it had been offered to them at a key life moment.

8. Awareness of Pension Wise currently depends, to a large extent, on whether consumers are informed about the service at a trigger point such as approaching retirement age. A quarter of consumers interviewed by Ipsos MORI were prompted by their providers to think about their options, so receiving a ‘wake-up’ pack from their provider at the right time is an important way of raising awareness.[11]

9. This suggests awareness could be boosted if Pension Wise was made available to younger demographics and a wider range of trigger events used to encourage people to get pension guidance. For instance people could be signposted to guidance at key moments in their lives such as having a baby or getting a divorce.[12]

10. The committee should consider recommending the introduction of a ‘Money MOT’ available at key moments in people’s lives. A Money MOT could provide holistic, joined up pension and money guidance.

Default guidance should be considered to make seeking guidance a norm

11. Another way to encourage consumers to seek guidance would be to make pension guidance a default part of the pension consumer journey. A key conclusion from the introduction of automatic enrolment is that consumers, and particularly pension consumers, are inert. A strong nudge to take up a service which for most people is a necessary part of making a good pension choice may be the most effective way of boosting take up.

12. Given the significant impact of guidance on people’s pension choices, the Committee should consider recommending the introduction or piloting of making guidance a default part of accessing pension savings, alongside continued efforts to raise engagement through pension passports and marketing.

3. Guidance should be more holistic and flexible to people’s needs

1. To make seeking pension guidance a new norm, the guidance offer needs to be more holistic and be available to people throughout their pension journey.

Pension Wise should include guidance on saving for retirement

2. We are pleased that Pension Wise has been opened up to consumers from 50 years of age to help with the process of early planning for retirement. As well as making pension guidance available to younger groups, the remit of pension guidance should be broadened to include guidance on accumulation.

3. According to recent FCA research, 15 million people are not saving anything into their pension and only 35% of people aged 45-54 have planned their retirement income.[13] Consumers’ inertia about pensions begins at an early stage, as people in their twenties, saddled with high levels of debt and low savings, often do not give sufficient thought to retirement.

4. Extending Pension Wise to younger demographics, and tailoring its services to include savings and accumulation guidance, would help to both alleviate this crisis and to normalise seeking guidance. This proposal is supported by many Pension Wise guiders who believe that more should be done to encourage young people to engage with their pension options.

Pension Wise should be joined up with other advice and guidance services

5. Currently Pension Wise guidance is restricted to a single session and the content is tightly restricted to the decumulation of defined contribution savings. In 2016-17, 27% of face-to-face Pension Wise clients had related advice issues of debt, benefit and taxation.

6. When the Single Financial Guidance Body is designing or commissioning pension guidance services it should make sure pension guidance is, at the very least, well joined up with advice and guidance services which provide help in other areas of people’s lives.

Pension guidance should be more flexible to people’s needs

7. Two specific changes would make pension guidance more responsive to people’s needs. First, pension guidance would be more effective if the remit of guiders was extended so they could help people with their pension situation covering any defined benefit pension savings and state pension entitlement. Last year Citizens Advice helped 13,000 people with issues related to the state pension.

8. Second, Pension Wise guidance should be able to offer follow-up appointments. Providing more than one appointment to clients would allow for more comprehensive guidance where needed. Guiders have also expressed support for the option of multiple appointments, which would allow them to carry out more personalised casework.

4. Guidance should be complemented by tools which help people engage with their pension

1. As well as guidance, tools can help consumers engage with their pensions and get the most from pension freedoms. The pension dashboard is an essential next step in improving engagement with both savings and the decumulation market. To get the most from the dashboard it should be integrated into a broadened guidance offer. A Pension Wise branded dashboard could prompt people to take accumulation guidance and encourage familiarity and engagement with the process of guidance prior to considering drawing their pension.

2. Government should not view the dashboard as purely related to savings or as a substitute for guidance, but rather as a useful supplement for supporting consumers during both the accumulation and decumulation phases.

3. The government could also help consumers make the most of pension freedoms by supporting the delivery of an independent drawdown comparison tool. Consumers view drawdown products as complex and the FCA’s research shows many consumers are likely to miss out on a good deal. A tool could be supported through the Single Financial Guidance Body.

5. Regulatory changes are also needed to protect consumers and help them make the most of their pensions

1. Through delivering Pension Wise, wider advice services, and the Consumer Helpline, Citizens Advice is uniquely placed to recognise where markets are not fully working for consumers. Our clients’ experiences suggest that the retirement income market is not currently allowing consumers to fully enjoy the benefits of pension freedoms.

2. Citizens Advice supports pension freedoms and the opportunities they bring. However, consumers still face several risks in the retirement income market. This includes scamming, unexpected tax and welfare consequences, investment risks, and high exit and annual charges. Although many of these can be addressed by more comprehensive guidance and advice, regulatory action is also needed to protect consumers from exploitation.

Scams

3. Pension freedoms have exposed consumers to new scam risks. Millions have received unsolicited contact about their pension since April 2015, including a large number of consumers aged 55-64 - the demographic which is most likely to make use of pension freedoms.[14]

4. Most consumers (88%) are unable to identify scams, according to our research. It is therefore unsurprising that pension scams cost consumers millions every year. Such high levels of scamming not only wipe out individual lifetime savings, but have the potential to undermine wider consumers’ confidence in legitimate financial advice and guidance services.[15]

Unexpected costs and delays

5. The 1% cap on exit charges, though a step in the right direction, is too high. A fee of £1,000 for moving a £100,000 pot to another provider does not reflect the actual administrative cost to providers and also discourages switching.[16] Our research shows that consumers also find it difficult to navigate the inconsistent and confusing charges imposed for accessing their pots, many of which hit consumers with smaller savings the hardest.[17]

6. Advice requirements are applied inconsistently and many of our clients are unsure as to why they have to pay for advice. By failing to properly explain why these requirements are necessary, providers are generating needless frustration amongst their customers. The wider industry is incurring reputational damage as a result.[18]

7. Consumers still experience long delays in receiving their first payment after requesting it. Frustration is more evident among clients who communicated with their pension providers by telephone and who purchased more traditional products such as annuities.[19]

October 2017