The government should publish, and require providers to publish, take-up statistics for the Pension Wise service and the advice and pensions markets on a quarterly basis, according to a report by the Work and Pensions Committee.
Its Pension freedom guidance and advice report has deemed the government’s reticence on publishing figures relating to the impact of the pension freedoms as ‘unacceptable’, and called for a rolling research programme to be introduced to monitor the long-term consequences of the reforms.
The report also recommended that the government work with providers to ensure that Pension Wise provides a more personalised and holistic service that looks at retirement income products in the context of other savings vehicles.
The report stated: ”Pension Wise guidance is currently too narrow for too many consumers. Decisions about retirement income products are not best made in isolation from information on property wealth, benefit entitlements, tax implications, care costs or debt.”
Upon concluding that the Pension Wise website is ‘not fit for purpose’, the committee has recommended that it be developed to include more illustrative examples that can be adapted according to the particular circumstances of individuals, an income calculator and a printable summary function.
It also recommended that the private sector develops a pensions dashboard, which would be maintained by the state. It urges the government to set out a timetable for the introduction of the dashboard.
While the committee welcomed the government’s new marketing campaign, it called on the Financial Conduct Authority (FCA) to strengthen its rules and guidance for pension providers around Pension Wise signposting and related risks, and recommended that data should be collected on the number of individuals that contact Pension Wise after being directed there by a provider.
The report also warned that further action is needed to address pension scams, urging the government to increase its publicity efforts and the FCA to tighten its scam awareness and reporting requirements for regulated firms.
The committee will continue to monitor action on pension scamming.
Advice and regulations
According to the report, the complexity of the advice market can act as an obstacle for consumers, and there are gaps in available support, namely ‘in the middle ground between free guidance and traditional but expensive face-to-face independent financial advice’.
The committee recognised that industry and regulatory bodies have identified this gap, and expects new products to fill it as long as regulators adapt to allow for product innovation and market entry.
The report stated: ”Understandably risk-averse providers are hesitant to bring new advice or pension products to market because of insufficient clarity surrounding the regulations that govern their operation.
‘We have yet to be persuaded by the case for relaxing regulation to provide providers and advisers with ‘safe harbours’ from liability. However, for pension freedom to operate effectively, it is necessary to ensure that people can get advice and, once informed, can take decisions contrary to that advice. Greater clarity would be an important first step.”
The committee has recommended that regulators and the government view the closure of the advice gap as their first policy objective. It also suggested that the second objective be clarification and simplification, including the use of standardised language, transparency around pricing for pensions and associated advice, as well as a clear distinction between guidance and advice under the Financial Advice Market Review (FAMR).
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “The committee advocates the expansion of public guidance services to fill the gap between advice and guidance as they currently exist. There is no evidence to justify this creeping nationalisation of the UK’s financial services.
“Take-up of Pension Wise has been very modest, whereas by comparison the pensions industry has, in the main, risen admirably to the challenge of the pension freedoms.
“The provision of tools, information, telephone and email support, as well as shopping around services by the pensions industry, dwarfs the efforts of Pension Wise.
“Before throwing more resources at the free guidance services, policymakers should explore the development of personalised guidance by the financial services industry as part of the FAMR and guidance reviews.
“The development of minimum standards for non-advised product distribution presents a more realistic and cost-effective route to delivering good consumer outcomes.”
Malcolm Mclean, senior consultant at Barnett Waddingham, added: ”I am sure we can all support the committee’s view that there is a lack of clarity, certainly in the minds of the public, as to the difference between guidance and advice and the confusion this can cause.
”There is also surely a need to encourage a wider involvement in the provision of factual information about the options available by, for example, employers in the workplace which currently are disinclined to get involved in the face of warnings from the regulator about the importance of them not giving advice.
”The role of Pension Wise as an independent source of guidance is obviously important and should be strongly promoted but as is evident from the take-up rate so far should not be the sole dispenser of help and support to consumers in this area.
“Better communication, as the committee has indicated, is a must if people are not to be misled as to what they can and should do.”