New approach needed to make pension freedoms work
22 December 2015
Responding today to consultations1 on advice, guidance and ‘shopping around’, the Pensions and Lifetime Savings Association has called for fresh thinking and a joined-up approach from Government and regulators to make pension freedoms work for millions of ordinary savers.
Joanne Segars, Chief Executive, Pensions and Lifetime Savings Association, said:
“Our research shows that the new pension freedoms are popular with savers. But it also shows that savers are frustrated that they cannot fully access the new freedoms. Trying to solve this by extending regulated financial advice or encouraging savers to shop around more effectively may meet the needs of the wealthier few, but will not help the many.
“Instead, we believe more comprehensive support should be available from the moment the saver starts to think about taking their money out. Trustees and providers should all be assured that they can signpost savers towards the availability of good value, independently-assessed products.
“2015 was the year the industry met the Government’s deadline to get the freedoms up and running. 2016 must be the year when Government and regulators work with us to develop a joined up and agreed plan about how to make those freedoms work effectively for savers.”
‘CP15/30: Pension reforms – proposed changes to our rules and guidance’ by the Financial Conduct Authority (FCA)
This consultation looks at what is needed to create a properly functioning market at retirement and starts from the assumption that savers can make the market work better. The knowledge gained from decades of experience in pension saving tells us savers cannot do this without significant support. Instead the experience of automatic enrolment shows that targeted policy interventions can be much more effective at raising standards across a whole market and creating good outcomes in a relatively short period of time.
‘Financial Advice Market Review: Call for input’ by HM Treasury and the FCA
This consultation rightly highlights the gaps in the availability of regulated financial advice. Wider access to advice would help but the reality is most people are not inclined to seek advice and reluctant to pay for it.
Our Understanding Retirement2 research shows that, among those who have already accessed their pension, only 39% sought out financial advice and only 21% sought help from Pension Wise (the majority of these using the website only). Of those we surveyed who can now access their pensions through the new freedoms and who started to think about what they might do, 56% do not plan to pay for regulated financial advice, 55% do not plan to contact their employer, 47% do not plan to contact Pension Wise, 40% do not plan to investigate options using the internet and 20% do not plan to contact their pension provider to discuss their options.
It is clear that paid-for advice will help solve the problem, but only for the few not the many.
‘Public financial guidance: consultation’ by HM Treasury
If paid-for advice will never provide a solution for the majority then guidance must be central in helping savers assess how the option signposted by their pension scheme meets their own needs. In response to this review by HM Treasury, we highlight that savers about to make retirement choices should consider using Pension Wise as a matter of course and we also suggest bringing Pension Wise into The Pensions Advisory Service, with a view to creating a centre of excellence where information and expertise can be shared. We also call upon the Government to set out what it sees as the definition of success for Pension Wise.
- Understanding Retirement wave II, unpublished results, survey of 2000 adults aged 55-70 with pensions not yet in payment at April 2015, survey conducted October 2015.