Work and Pensions Committee report highlights lack of guidance for savers

The Work and Pensions Committee has proposed a series of reforms to improve government support for savers accessing their retirement pot.

Automatic appointments with the government guidance service Pension Wise service should be trialled as part of a “renewed commitment” from the government to support people to make better decisions in retirement, MPs said today.

Pension Wise was established to provide a “guidance guarantee” which was presented by the government as a key pillar of the introduction of the pension freedoms, but the Committee’s latest findings conclude that not enough people are using it.

A report on accessing pension savings from the Committee has found that the extra freedoms introduced in 2015 have on balance been a “success” but added that many savers need more support than they currently receive. During its inquiry, the Committee was told by the 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.

“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,” said Chair of the Work and Pensions Committee, Stephen Timms. “Seven years on, guidance remains the missing piece of the pension freedoms jigsaw.

“Nudging savers will not be enough. The government and regulators can no longer just sit on their hands as decision making becomes ever more complicated.

“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 Committee’s report has recommended the government sets a goal of at least 60% of people to be using the Pension Wise or receiving paid for advice when accessing their pension pots for the first time.

At present, however, just 14% of defined contribution pension pots are accessed after the use of Pension Wise.

Commenting on the Committee’s findings, AJ Bell head of retirement policy, Tom Selby, added: “While we don’t agree with all the recommendations put forward by the Committee, MPs deserve credit for taking a pragmatic approach. Rather than simply demanding radical reforms immediately, the Committee wants to road-test through trials ideas such as automatic enrolment into guidance and tax-free cash ‘decoupling’.

“This is a sensible approach to policymaking which should ensure any interventions are based on a firm body of evidence, with unintended consequences and costs thoroughly considered. We hope the government and regulators consider adopting a similar approach when introducing reforms in the future.”

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