Default guidance – the faults
I recently had the pleasure of visiting a close relative who happens to have just reached the magic age, at least as far as pensions are concerned, of 5.
Within seconds of arriving I was asked a question which is I’m sure familiar to many in financial services, “Can you help with my pension?”
My relative had already decided to take a small tax free cash payment from their pension but wasn’t interested in taking any taxable income. They really just wanted someone to hold their hand as they went through the online process to access the cash.
The process was straightforward and included prominent prompts to take advice or make use of Pension Wise.
My relative’s mouse swept straight over these prompts to the next button needed to access the tax free cash. I felt duty bound to say to them that seeking advice would be sensible and that Pension Wise was a popular service with those who used it and that they should have a think about those options.
The response to my prompt was along the lines of “I’ve already worked out what I want to do. It’s my money, so what’s the point of speaking with anyone else”.
It was in the context of this discussion, that I considered current legislative proposals, subsequently recommended by the Work & Pensions Select Committee, for individuals to be auto-enrolled into Pension Wise.
The proposals are sketchy – the draft legislation is worded in such a way as to be open to several interpretations – but will broadly require providers to book Pension Wise appointments for non-advised customers looking to transfer a pension to access the pension freedoms, or to use the pension freedoms themselves. Customers will be able to opt out of these appointments but the implication is, in the absence of an opt-out, that they won’t be able to transfer or access their benefits until they’ve spoken with Pension Wise.
Better informing customers through advice or increasing engagement with Pension Wise is something I wholeheartedly support, as evidenced by my prompts to my relative.
My support doesn’t extend to the default guidance proposals. They are effectively unworkable and will lead to huge numbers of complaints.
Considering the practicalities, let’s think about someone with three separate pension arrangements who wishes to transfer these all into a single scheme to take benefits.
Looking at availability of Pension Wise appointments, as I write this in the second week of January, the first available date for a telephone-based Pension Wise appointment is 19 February and for a local face-to-face appointment is 14 February – with face-to-face appointments only available on Wednesdays! If I want to transfer my pension or take benefits I’m not going to be prepared to wait more than five weeks to speak with anyone before I can kick the process off.
It’s also possible the providers of each of the transferring schemes will try to book a Pension Wise appointment for our individual. The provider through which they take benefits will also be required to book a Pension Wise appointment. Perhaps Pension Wise has some way of stopping providers from booking multiple appointments for the same individual. If not, thousands of ‘repeat’ Pension Wise appointments may be made.
The question also has to be asked of whether the point a customer contacts their provider about transferring or receiving benefits is the right point for the appointment? Customers don’t typically contact providers until they’ve already made a decision about what they want to do. If they’re not advised, this guidance is needed well before they’ve decided on that course of action. Booking an appointment with Pension Wise at the point they contact their provider to take a course of action is too late. Many will view the provider-booked appointment as an attempt to put artificial barriers in the way of them doing what they want with their money.
Practically it is also questionable how this will work given the variety of ways in which customers can give instructions. How does booking a Pension Wise appointment for a customer work when the first the provider knows about the customer’s choice is when a paper Benefit Options Form arrives in the post? The provider could put an ‘opt-out of appointment’ box on the Options Form, but how does that achieve anything more than existing requirements to include prominent prompts towards Pension Wise on the form itself?
How does it work in my relative’s case, where they were asked to go through a series of online options leading to almost immediate receipt of their tax free cash? Customers will only initiate that online process once they’ve decided how they want to take benefits. If that is the point where they’re meant to be defaulted into guidance they will just opt out.
Last year, through Twitter, I asked one of the key supporters of this proposal, Baroness Ros Altmann, how default guidance could be made to work in any practical sense for those taking benefits. When Ros chose not to answer the question I opened it up to the wider Twitter world.
I’m still waiting for anyone to tell me.