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Five key takeaways from the Work & Pensions Committee’s report

4 months ago

The Work & Pensions Committee has recently published the second report in its series on life after pensions freedoms. This report concentrated on the issues people face when accessing their benefits.

I had a particular interest in reading the report, as in the summer I gave evidence to the Committee. It can sometimes be easy to dismiss these reports, but the Committee does have teeth – and quite sharp ones at that. It set out a list of recommendations, and it will monitor what progress government makes against that list.

Five key takeaways from the report were:

1. More guidance

The Committee wants more people to get help when deciding how to take their pension savings. It suggests the Government set a target of at least 60% of people getting help from either Pension Wise or through paid-for advice. Not content with nudging (advised and non-advised) customers to guidance, it wants the Government to run two trials for automatically enrolling people into Pension Wise appointments: one at age 50 and one at the point of access. My view though is that advised customers don’t need automatic appointments.

The Committee also recognised providers struggle with the advice / guidance boundary. It has two suggestions: limited advice (a recommendation based on limited or partial information) and enhanced guidance (which wouldn’t be a regulated activity). It wants the FCA to provide examples of both to the industry. Providers already have established relationships to help non-advised customers, and it would be a step forward to review the guidance boundary.

2. Change the pensions advice allowance

The PAA isn’t working. The Committee recommends an overhaul, including removing the annual limit and more signposting. However, the real reason the PAA hasn’t delivered what policymakers hoped for is because savers may already be able to pay for advice from their retirement pot, so customers aren’t rushing to take it up nor are advisers rushing to promote it. This lack of demand means providers often don’t offer it.

3. De-coupling tax-free cash

The Committee considered a new proposal to allow de-coupling of tax-free cash, where someone could take their 25% cash without designating the rest into drawdown. It recommended regulators scope the research and testing needed to investigate this proposal further.

The option to manage taking benefits this way is already available with drawdown. I’m not clear why adding another option would lead to better customer decisions and suspect it would only increase complexity and confusion.

The Committee also recommended MaPS and FCA develop proposals to increase the number of people choosing a mix of retirement products. Pension savers can already do this, but often they are drawn either to the flexibility of drawdown or the security of annuities. The demand hasn’t been to mix them.

4. The pensions dashboard

Often it feels as if the pensions dashboard is positioned as the answer to all pension woes. It certainly won’t be a panacea but could be a useful tool for some. The Committee warns against allowing transactions – such as increasing contributions or transferring – through dashboards until they are well established.

This acknowledges this direction of travel. Parts of the industry are keen that the dashboards become a springboard to these actions.

5. Less pension complexity

Finally, the Committee warned the Government not to add to pension complexity. I suspect that horse has already bolted. We already have three annual allowances and seven sets of transitional protections.

However, pension rules are never stable and there are always opportunities to simplify. It’s a shame, therefore, that the Treasury has ignored an opportunity to do this. Instead, it plans to introduce a complicated protection regime alongside the increase in the normal minimum pension age to 57, creating a difficult mess for advisers and providers to explain and for people to understand.

I thought this was a balanced report that covered a lot of ground. I was particularly struck by the Committee’s approach recommending the testing of ideas, instead of rushing to install them. However, when testing them we need to consider a wide range of different savers and consider a multi-pronged approach. Not all SIPPs are the same, and nor are the savers who invest in them.

This article was previously published by Money Marketing

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Rachel Vahey

Rachel Vahey

Job Title
Head of Policy Development

Rachel is Head of Policy Development helping financial advisers and planners understand the changing pensions and savings environment, as well as how new legislation and regulation affects them and their clients. She’s well known within the pensions and savings industry, and regularly speaks at AJ Bell events, alongside writing content and articles for our website.

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