There were some very good points made in the recent work and pensions committee’s evidence session which, if translated into action, could make a real difference to retirement outcomes.
The concern is whether anything can or will be done by the government to take forward the innovations suggested.
Action against scams
The first concern raised was pension scams and what can be done to mitigate them. It is true that the delayed ban on cold-calling would not prevent scammers finding other ways to target investors, but it was pointed out to the committee that it would facilitate a clear message to consumers that any cold calls about pensions should always be ignored. The government should stop delaying and just get on with it.
The committee was also informed that the Lords’ proposed amendment to the Finance Bill also included an automatic guidance appointment for anyone who seeks to transfer or withdraw money from their pensions.
The government’s guidance service is free and impartial and would cause less resentment among those who do not want or cannot afford to pay for financial advice.
Communicating about pensions
Another issue was the need for people to be better informed about their pension savings.
This could be achieved via the pensions dashboard as well as the use of simpler one-page statements, the “pensions passport”. The sticking point with the former is whether or not the system will be comprehensive enough to be credible. Many industry people are calling for mandatory participation for all schemes and it was pointed out that even if the government does not want to introduce more legislation during the Brexit period they could state their intention to do so, giving schemes both notice that they will have to comply and time to prepare.
With regard to content, the pursuit of simplicity is essential. Too much information will certainly put people off, and it will also make it much harder for schemes to comply with the data requests. I can understand why consumer groups want full disclosure of “charges, contributions, benefits and guarantees” to be included but it would slow down delivery.
Much better to have some information from all schemes than in-depth information from some schemes, then add more features over time.
Of course, pensions are supposed to be about retirement income; if I have one concern about LV=’s worthy trial of their pension passport it is that, unlike the dashboard prototype, it provides a fund value but no indication of the income it could produce.
The government should put pressure on the industry and regulators to come up with universal generic examples of the income that specified fund sizes could provide at different ages.
Timing issues
The point was made several times that guidance should not be restricted to the point of retirement. Interventions need to be made earlier and on a more regular basis. Tying it to life events would be beneficial, in particular, the proposal of a mid-life MOT at age 50 which would be designed to make people stop and think about their pension before the point at which they can access it.
Once income has commenced, ongoing planning is essential to avoid people running out of money.
Introducing an income floor for drawdown would only make it inaccessible to many, as was shown by the relatively low numbers of flexible drawdown plans taken out before pension freedom. It is also a very broad brush tool which would fail to take into account the individual’s wider circumstances.
Product innovation
There is certainly a need to explore ways in which basic income needs can be covered and the issue of longevity can be addressed, however, the witnesses to the committee seem to favour more planning tools and advice rather than a suit of more complicated products.
A single product wrapper which delivers flexibility, guaranteed income and longevity insurance would carry higher charges than using a judicious combination of those that are already there.
Overall it is extremely encouraging that the committee did not seem to be looking to turn the clock back on pension freedoms. They have certainly uncovered some useful suggestions for further development, it is to be hoped some of them will come to fruition.
Fiona Tait is technical director at Intelligent Pensions
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