Relying on Pension Wise not enough to protect savers from poor retirement decisions
18 January 2022
The Pensions and Lifetime Savings Association (PLSA) agrees with the Work and Pensions Select Committee’s findings that savers are not receiving enough support from Government and regulators to make good decisions at retirement. However, while the Committee’s proposals are a step in the right direction, we do not believe the increased reliance on guidance from Pension Wise will be sufficient to ensure savers get good outcomes.
In its report, ‘Protecting pension savers—five years on from the Pension Freedoms: Accessing pension savings’, the Select Committee finds that there is concern that savers are not making the right choices at retirement and are put off by the cost of individual financial advice. It also found that Government, regulators and pension schemes could have a vital role to play in providing this support.
Guided Retirement Income Choices
The PLSA urges the Government to give further consideration to its proposals for a decumulation framework which obliges schemes to provide or signpost additional support, with stringent standards around the communication journey, product design and governance.
We believe that the certainty of such a framework would lead to a vibrant market of schemes developing solutions to meet the full range of retirees’ needs: a blend or wrapper of a reliable stream of steady income (via annuities or annuity-like products), additional investment growth (via investment drawdown) and liquidity (via cash lump sums).
The PLSA’s proposals, known as Guided Retirement Income Choices, would build on Investment Pathways, and would be suitable for trust- and contract-based pensions.
The Select Committee concluded that such blended products might prove expensive. However, our proposals are designed to standardise product design and communication to achieve and pass on scale advantages to savers, and reduce the need for each person to pay for expensive personalised financial advice.
Additionally, guidance could be offered through a saver’s workplace or scheme, with whom many people will have likely already built a trusting relationship.
Helping saver engagement and understanding
The PLSA fully supports the Pensions Dashboard project and believes it has the potential to be transformational in helping savers understand what pension provision they have.
However, for the project to be a success, savers must have confidence that the information they see in a Dashboard is correct.
It is, therefore, welcome that the Work and Pensions Select Committee shares the PLSA’s view that transactions should not be made possible in the first iterations of Dashboards so as to allow more time to ensure connecting to dashboards works correctly, and more time to agree the right way to display pension values. It is very hard for savers to fully understand the shape and value of their pension benefits, especially if it is a DB pension with life assurance and a spouse’s pension, in the limited space available on a pension dashboard. Therefore, there is a real risk that transactional dashboards could lead to substantial poor outcomes for savers.
It is also positive that the Committee has listened to the concerns of the industry and determined that there is insufficient evidence that the gains from introducing a short, paper-based, statement season would outweigh the significant costs and complexity of introducing it. The PLSA agrees with the recommendation in the report that Government should adapt or drop its proposal for a pension statement season if the benefits cannot be robustly demonstrated.
Nigel Peaple, Director of Policy and Advocacy at the PLSA, said: “The Select Committee has conducted a timely and thoughtful examination of the Pension Freedoms. We welcome their assessment that savers need a blend of retirement solutions – annuity, investment drawdown and cash – as the PLSA has argued since our 2018 Hitting the Target report.
“However, we don’t think the Select Committee’s proposals regarding a greater role for Pension Wise in providing guidance – though good in itself – will be sufficient to ensure that everyone gets good outcomes at retirement. We think Government should go one step further, and adopt the PLSA’s Guided Retirement Income Choices proposals, which will encourage the development of a vibrant market of blended solutions and a greater role for schemes in sign-posting or offering the right solutions.”
Mark Smith, Senior PR Manager
020 7601 1726 | [email protected]
Steven Kennedy, Senior PR Manager
020 7601 1737 | 07713 073024 | [email protected]