Rachel Vahey: My evidence to the government’s accessing pensions report

I recently gave evidence to the Work & Pensions Committee for its report on accessing pensions. When people get to retirement with a defined contribution pension, they have a choice about what they want to do with their money. Choice is good. More than half the adult UK population contributes to a pension; they can’t all have the same needs at retirement, and choice allows them to tailor solutions to suit their circumstances.

But choice can also be confusing. So it’s crucial to develop the right framework around how we help people to make these decisions as they approach retirement.

This is what the Work & Pensions Committee is currently considering. It does this against a backdrop of regulators pushing to develop stronger nudges to a single source of official guidance for non-advised customers, implementing default investment pathways, and considering how enhanced guidance could help close the understanding gap.

These are the five of the points I made in the session.

1. Pension Wise is not the only guidance provider. A lot of store is placed by regulators and the Government on reaching a quota of Pension Wise appointments. But the truth is, people get guidance on their pension from a variety of sources, and at multiple touchpoints. To just assume guidance comes from one source misses how real life works. Instead, we should be broadening the conversation to recognise that people receive regulated financial advice and promote providers giving more targeted guidance alongside Pension Wise. All these sources are – and should be seen as being – valuable ways of helping people.


2. The timing of the nudge is wrong. The FCA is proposing providers give non-advised customers a stronger nudge to guidance when they request to access benefits. But there are several things wrong with this proposal. The most obvious is that it is of little benefit to nudge people once they have decided what they want. At this point, they just want their benefits – usually their tax-free cash – and anything in their way is seen as a delay and a hinderance. Instead, we need to nudge before they start to think about their benefits, when they are making the decision, and also as they navigate the challenges of drawdown.


3. We need enhanced guidance. Regulators should continue to promote regulated advice. But those people for whom it’s not the right solution need better help. Currently providers can only give customers realms of information on all options. Giving targeted information that reflects the customer’s personal circumstances would be more powerful.


4. Investment pathways could have been done better. These regulations are prescriptive, detailed and, for some consumers, a waste of time. Implementing them has taken time, effort and money. Almost six months after implementation, the take-up from certain groups of customers has been low – especially amongst AJ Bell’s core demographic of engaged investors. The FCA was worried about people making poor investment decisions, especially investing majorly in cash. There are other ways we could have – and indeed were – addressing that risk and communicating these concerns to customers.


5. The pension advice allowance needs fixing. The take-up of the pension advice allowance has been low. True, there are few providers offering this facility, but that is because there is little demand from advisers and their clients. We believe that HMRC should allow funds to be taken from a pension scheme where they pay for advice that relates to wider retirement matters and, importantly, not just that one pension scheme. But the current caps are insufficient to pay for the cost of advice. Instead, the caps should be removed, and measures put in place to prevent exploitation or scams.
   
   Providers already monitor pensions charging and pick up charges which are outliers and seen as unreasonable. We can extend these to cover pension advice allowance charges as well.

The discussion in the Committee evidence session covered a lot of ground. These are only five of the many points we touched on in that hour, and I would urge you to watch this session and others that preceded and followed it to get a sense of the wide scope the Committee’s report will cover.

We expect the Committee’s report in the autumn. This will be the second of a trilogy of reports, following on from its scams report published earlier this year. The final report will cover saving for later life and what more needs to be done to help people plan and save for retirement. I have given evidence for the first two of these inquiries. Let’s hope AJ Bell gets the opportunity to contribute to the third and we can make it a hat trick.

This article was previously published by Money Marketing