"The Work and Pensions recommendations are laudable and the goal to encourage at least 60% of people to use Pension Wise or pay for advice is certainly ambitious."
The report - 'Protecting pension savers—five years on from the Pension Freedoms' - recommends that the Government report annually on progress and plans to increase the uptake of pensions advice.
The Committee wants the Government to set a goal for the Money and Pensions Service for the combined use of Pension Wise and paid-for advice when accessing pension pots for the first time. It says this goal should be at least 60% and expressed in terms of individuals rather than pots.
The report said that the “stronger nudges” towards guidance being proposed by the Department for Work and Pensions and the FCA will not be enough to make receiving pensions guidance the norm. The Money and Pensions Service told the Committee that it
would support a trial of automatic Pension Wise appointments and MPs said they "can see no clear barrier to doing this".
The report added that the Pension Advice Allowance policy is "not working", either because of a lack of awareness or lack of demand. The Allowance enables £500 to be withdrawn from a pension up to three times in different tax years for advice. MPs on the Committee said that "the broad aim of the policy is correct, but it has been poorly executed" and recommends a full review and overhaul of the Pensions Advice Allowance.
Peter Glancy, head of pensions policy at Scottish Widows, told the Committee that advice cannot be “the preserve of the wealthiest 20% of the population” and that “We really need to challenge ourselves, government regulators and the industry to be able to provide some sort of advice that is available for in the region of £100 to £200.”
Elsewhere, the report discussed the arguments for and against decoupling the 25% of a pension pot which is tax free from the rest of the pot. The Committee said that people who take up to 25% of their pension as a tax-free lump sum can take "poor decisions about the remaining 75%".
It recommends that regulators "should carry out a scoping exercise" to establish the research and testing which could be undertaken on decoupling the 25% of a pension pot which is tax free from the rest of the pot.
Andrew Tully, technical director at Canada Life, commented: “The Pension Freedoms are rapidly approaching their seventh anniversary and in that time many people have benefited from the options available. But with those options comes huge personal responsibility and I’ve no doubt some people will have made poor choices along the way. Whether that be withdrawing money from a tax advantaged pension to sit in a bank account, unsustainable withdrawal rates or not taking full advantage of the ways to withdraw money tax efficiently.
“The Work and Pensions recommendations are laudable and the goal to encourage at least 60% of people to use Pension Wise or pay for advice is certainly ambitious. Early intervention in the decision process is key here before people have made their mind up about what they want to do with their pensions, which is reflected in the recommendation to start the process at age 50. Hopefully more people will be encouraged to seek regulated advice when they realise how complicated the decisions around retirement planning can be.”
Jon Greer, head of retirement policy at Quilter, added: “Low levels of Pension Wise guidance appointments will naturally be of concern to members of the Committee, particularly as the government were very coy in providing a target level of uptake.
“While we would welcome a trial of automatic Pension Wise appointment booking, certain behavioural shifts need to happen before these can be a success. With the rise in DC savings comes greater responsibility on the part of savers, and this is something they’ll need to understand as early as possible. Therefore, it’s best the automatic appointment happens as early as possible, ideally at the age of 50. Any later, and it’s likely people will have already made up their mind.
“Likewise, an early Pension Wise appointment will likely push people in the direction of financial advice, which really is the gold standard when it comes to getting the most suitable retirement plan in place. This can only be a good thing."