Bolder guidance and a system of automatic appointments for Pension Wise sessions were called for by industry representatives this week. Can savers be ‘nudged’ into good decision-making? 

  

The Work and Pensions Committee held an oral evidence session on accessing pension savings on Wednesday morning. The session forms part of the committee’s inquiry into the impact of the pension freedoms. 

  

A call for clearer advice and guidance for savers and clearer boundaries for schemes 

  

One way to help savers could be through clearer communication. Julia Mundy, a member of statutory body the Financial Services Consumer Panel, argued that the best way to help people with their pension is with “some sort of guided conversation”. 

  

“It's critically important to get this right, because if their first experience leaves them feeling worried, they are much less likely to come back and seek further support,” Mundy said. 

  

One way forward would be through a clearer definition of advice and guidance, some panel members felt. Clearer rules on what constitutes advice would allow firms to have the opportunity to help savers better, said Mundy. 

  

“Firms are worried about stepping over the line, so they're staying away from the line that would really push them much closer to what consumers need. Consumer Panel thinks there is scope for that gap to close but firms will need support,” she said. 

  

Renny Biggins, head of retirement at financial services association The Investing and Saving Alliance, agreed and suggested stretching the remit of the latter in the definition: “I'd like to see that clear definition. Perhaps enabling providers to provide an element of personal recommendation, some sort of personalised guidance, because that degree of personalisation really resonates with individuals.” 

  

Statistics show that some members are not taking as much consideration 

  

Data released by the Financial Conduct Authority in September 2020 found that almost half of regular pension withdrawals were withdrawn at an annual rate of 8% or more of the pot value. “Clearly that's unsustainable,” said Biggins. “[This] indicates that these people aren’t really getting enough guidance or taking regulated advice.” 

  

The data also found that savers with smaller pension pots, averaging between £10,000 and £100,000, were more susceptible to high withdrawal rates. Chris Brooks, head of policy at charity Age UK, stressed that the point of pensions is to “provide an income throughout retirement and sustain people throughout their later life”, not to spend their money immediately. 

  

“It is possibly the largest amount of cash they’ve ever been able to get their hands on in their lives, and it’s very attractive to take it as soon as you can,” Brooks said. “[This] is a potential problem being stored up.” 

  

For savers to receive a better service, the panel agreed that guidance is essential. “They’ll need to understand [what] the available options are and the inherent risks that are associated with those options as well,” said Biggins. “Since we’ve had the shift from DB to DC, all those risks moved from the employer onto the individual themselves. Often, they’re unaware of these risks that they’re exposed to.” 

  

It is clear from the statistics that too many people are accessing their pots without any guidance at all. Mundy believes there “definitely needs to be a change”, saying: “There's a very long way to go here given concerns about people sleepwalking into retirement. We need to understand who needs the support and when they need it.” 

  

Are auto-appointments the answer to tackling low take-up? 

  

Setting up an automatic appointment system with Pension Wise could be a solution to the low take-up on advice and guidance, it was suggested, but not everybody was in full agreement. “I'm never in favour of forcing people down a certain road; there's only so much you can do,” Biggins said. 

  

In contrast, Laurie Edmans, commissioner at The Financial Inclusion Commission, argued that automatic appointments with an opt-out should “at least be trialled”. 

  

What both panellists were in agreement on was starting the process earlier. “What we’ve got to do is really change the understanding and engagement in people’s finance generally. Which is necessary given the big shift from responsibilities being taken by institutions, to responsibilities being put on the shoulders of the individuals. So, I think the earlier, the better," said Edmans. 

  

One of the prime reasons that take-up is low, is that people have already made up their minds that they want to take their money out said Biggins, also arguing that guidance therefore “needs to happen earlier in the journey, before people make their mind up to help them make decisions. It can't come after the event, after the horse has bolted”. 

  

Although advice and guidance will not necessarily give savers all the answers, Mundy reasoned that they would “stimulate their thinking and get them having that next part of the conversation”. This kind of process would help savers to feel comfortable about the conversation, Mundy believes. 

  

“We know people feel scared about talking about pensions and they don’t understand them. So, trying to make the experience normal and in everyday language, taking away the fear of it, can go a long way in getting them moving and activated into making the right decision,” she said. 

  

 

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