Savers are struggling to navigate the “pensions minefield” and need more support to make well-informed decisions before they retire, according to MPs.
The Work and Pensions Committee has urged that a target should be set of at least 60 per cent for people using Pension Wise or receiving paid-for advice when accessing their pension pots for the first time.
It said UK Government and regulators must “end their timidity” to help savers avoid making poor decisions and in some cases ending up as victims of pensions scams. Pension Wise helps people aged 50 and over to make sense of their options, offering free, impartial guidance.
The committee said: “We recommend that the [UK] Government sets a goal for the Money and Pensions Service for the combined use of Pension Wise and paid-for advice when accessing pension pots for the first time.
“This goal should be at least 60 per cent and expressed in terms of individuals rather than pots. It could include an exemption for smaller levels of saving.”
The committee added that automatic appointments with Pension Wise should be trialled, to help support people to make better financial decisions.
There should be one appointment when a person accesses their pension for the first time and also one at the age of 50, before they can access their pension savings, the committee suggested.
The pension freedoms, introduced in 2015, give people a much wider range of choices over what to do with their pension, rather than being required to buy a retirement annuity.
The Committee said that, although Pension Wise offers a good service, not enough people use it.
During an inquiry, the Committee was told by the Financial Conduct Authority (FCA) that consumers describe pensions as a “minefield”, with even those who felt financially confident in other aspects of their lives struggling to understand how pensions work.
Stephen Timms MP, chair of the Work and Pensions Committee, said the pensions landscape “is in a constant state of change”.
He said: “It’s little wonder therefore that – as the [UK] Government’s own financial regulator recognises – people struggle to navigate the pensions minefield.
“When the 2015 reforms were introduced, the Government guaranteed that savers would be given the tools they needed to take advantage of the new range of options and make well-informed decisions. Seven years on, guidance remains the missing piece of the pension freedoms jigsaw.”
He continued: “Nudging savers will not be enough. The [UK] Government and regulators can no longer just sit on their hands as decision making becomes ever more complicated.
“They must end their timidity and be much more active in supporting people as they approach retirement. We know that those who use Pension Wise find it useful and often make different choices as a result. Every effort should be made to boost its use.
“Without intervention to drive up dramatically the numbers receiving advice and guidance, savers will make poor decisions and, in far too many cases, become scam victims and the pension freedoms, far from living up to their name, will instead trap people in an increasingly confusing web of complexity.”
The FCA should look to increase the number of people choosing a mixture of retirement products which could benefit them, the report suggested.
For example, someone may benefit from withdrawing a lump sum when they first access their pension and at a later stage in their life choose an annuity, which guarantees an income.
The pensions advice allowance, which allows £500 to be withdrawn from a pension up to three times in different tax years for advice, should also be overhauled with the annual limit removed and the Money and Pensions Service and advisers encouraged to signpost its use, it said.
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Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, commented: “Pension freedoms are almost seven years old and while people have taken to the new flexibilities with gusto, in many cases they are doing so without the support of guidance or advice. There are many tools that people can access to help them find out more about their options, but they remain under-used and scattered.
“Only around 14 per cent of people who could be making use of Pension Wise are actually doing so, while use of the pensions advice allowance remains low. People don’t know these services exist, never mind how to access them – we need a new approach.”
Andrew Megson, Executive Chairman of My Pension Expert, said: “MPs are right to address the lack of support for pension planners. However, I fear they are missing a trick by placing greater importance on guidance, as opposed to independent financial advice.
“While guidance can be a useful tool, it is too generic and does not take into account an individual’s specific needs. What’s more, evidence suggests that Britons actually find more value in tailored, regulated financial advice – the problem is that they don’t know how to access it.”
He added: “Recent research from My Pension Expert found that almost half (47%) of Britons feel the [UK] Government should do more to improve access to independent financial advice, so surely it would be more beneficial for the Government to focus efforts on advice instead.”
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