MPs have been warned that a lake of guidance for pension savers could prove to be hugely problematic over the coming years and the Government, along with regulators, need to play a more active role in supporting savers to make better decisions about their money.
The Work and Pensions Select Committee warned pension freedom rules are at risk of being seen as a failure, as the Financial Conduct Authority (FCA) admitted consumers find their pensions to be a “minefield” and are in serious need of guidance.
The committee said the Government should commit to a trial of automatic Pension Wise guidance appointments for all those accessing their pension freedoms and set a target of at least 60 per cent take-up.
Currently, just 14 per cent of defined contribution pension pots are accessed after the use of Pension Wise, a Government service which provides free and impartial guidance.
The committee’s other recommendations included a call for the Pensions Advice Allowance, which allows £500 to be withdrawn from a pension up to three times in different tax years to pay for advice, to be overhauled with the annual limit removed and the Money and Pensions Service (MaPS), along with advisers, encouraged to signpost its use.
In July 2021, the Department for Work and Pensions (DWP) set out “stronger nudge” plans which aimed to help those accessing or transferring their pensions seek out Pension Wise guidance. Those rules were tweaked recently to ease the burden of administering the support but Stephen Timms, chairman of the Work and Pensions Committee, warned this does not go far enough.
He said: “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.”
A DWP spokesperson said: “We are committed to ensuring people have the support and information they need to make informed choices about their financial futures, striking the right balance between providing vital protections and informing pension savers, while also giving them freedom and choice about how to use their hard-earned pension savings.
“Our Stronger Nudge measures will require pension scheme trustees to offer to book a Pension Wise appointment for a saver, unless they actively decide to opt out of receiving guidance through a separate communication.
“Since November, our new transfer regulations have bolstered protections for savers by empowering trustees and scheme managers to halt a transfer request where they suspect it could end up in the hands of a fraudster.”
This article has been updated to include the DWP’s response.
i Money is partnered with Age Partnership, a whole-of-market independent financial advice firm specialising in money matters for the older generation.
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