Too many people are confused by pensions and at risk of scams, and need more help in the run-up to retirement, say MPs.
They call on the Government to ‘end their timidity’ and trial automatic appointments with free guidance service Pension Wise, claiming current plans to ‘nudge’ people into it will not be enough.
MPs also suggest investigating the ‘decoupling’ of the 25 per cent tax-free lump sum from the rest of a pension pot – potentially allowing people to take that cash and leave the other 75 per cent in their work schemes for longer.
Retirement plans: Too many savers are confused by pensions and at risk of scams, say MPs
Pension freedoms that let people access their entire retirement savings at 55 have been a success on balance, but many ‘struggle to navigate the pensions minefield’, according to the influential work and pensions committee.
‘The Government and regulators can no longer just sit on their hands as decision making becomes ever more complicated,’ says chair Stephen Timms MP,
‘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.’
In a previous report last summer, the committee of MPs slammed the Government for defying widespread calls to crack down on financial scam adverts in the forthcoming Online Safety Bill.
During the past week, it has been rumoured the Government could U-turn and include paid-for ads in the legislation after all.
Meanwhile, the Department for Work and Pensions yesterday confirmed plans to give people in occupational pensions – those run by trustees on behalf of employers – a ‘stronger nudge’ towards taking up appointments with Pension Wise.
The Financial Conduct Authority oversees a similar nudge system for work schemes that are run by outside pension firms for employers.
The regulator has previously estimated that one in seven people accessing a pension for the first time use Pension Wise.
What is Pension Wise?
Over-50s can book a free appointment to discuss their pension pots and retirement plans with the Government-backed service here.
Staff will offer guidance on the options available, but for detailed personal advice you should consider paying for financial advice.
Meanwhile, a separate official behavioural study found 11 per cent of people who received a ‘nudge’ attended an appointment, compared to 3 per cent who did not.
The latest report from MPs cited an estimate from a pension firm that after savers have spoken to Pension Wise, just 14 per cent of pension pots are then accessed.
This could be because while savers often feel pressure to use pension freedoms, the best course of action is often to do nothing with their retirement pot immediately.
>>> Should YOU tap your pension? 10 questions to ask yourself first.
‘Automatic appointments with the Pension Wise service should be trialled as part of a renewed commitment from the Government to support people to make better decisions in retirement,’ say MPs today
‘The committee’s report recommends the Government sets a goal of at least 60 per cent of people to be using the government guidance service Pension Wise from the Money and Pensions Service or receiving paid for advice when accessing their pension pots for the first time.’
The MPs’ report also explored the issue of decoupling the 25 per cent per cent of a pension which is tax free from the rest of the pot.
‘This is one of the most well-known UK pension policies and leads to many people who access their pensions for the first time taking poor decisions about the remaining 75 per cent,’ says the report.
‘We heard persuasive arguments both for and against. The best way to assess these arguments is through further research and testing. We recommend that regulators should carry out a scoping exercise.’
But MPs were sceptical about the possible introduction of an annual awareness-raising pension statement ‘season’.
‘The committee is not convinced that the gains from a pension statement season, where schemes are required to send out annual statements, justify the complexity of introducing it,’ they say.
‘The Government must be prepared to adapt or drop its proposals if the benefits cannot be demonstrated.’
Timms says: ‘From the introduction of auto-enrolment through to the continued shift from defined benefit to defined contribution schemes, the pensions landscape is in a constant state of change.
‘It’s little wonder therefore that — as the Government’s own financial regulator recognises — people struggle to navigate the pensions minefield.
‘When the 2015 reforms were introduced the Government guaranteed that savers would be given the tools they needed to take advantage of the new range of options and make well-informed decisions.
‘Seven years on, guidance remains the missing piece of the pension freedoms jigsaw. Nudging savers will not be enough.
‘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.’
A DWP spokesperson says: ‘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.’
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