MPs have called for joint annual assessments of the success of pension freedoms by the Department for Work and Pensions and the Treasury, saying they expect several of a series of recommendations made on Tuesday, mostly focused on guidance take-up, to be included in this. They also want regulators to run joint consultations on pensions in future. 

 

The Work and Pensions Committee has published its report following the second part of its three-part inquiry into the pension freedom reforms, making a slew of recommendations to improve outcomes and people’s at-retirement experience. 

 

“Six years on there remains no framework against which to evaluate the success of the freedoms or make judgements about the need for—or effectiveness of—support interventions,” the committee chaired by Stephen Timms said. 

“Our predecessor Committees have asked three times for the Government to improve its monitoring and reporting on the progress of the pension freedoms. We recommend that the Department for Work and Pensions and the Treasury jointly produce an annual assessment evaluating these measures holistically. We would expect several of the recommendations we have made in this report to appear in that publication,” it added. 

 

The recommendations are wide-ranging. They include regulators testing the possibility of “decoupling” the 25% cash free allowance from the rest of a pension pot, and increasing the use of a mixture of annuities, drawdown and cash, as well as extending collective defined contribution to multi-employer schemes. 

 

MPs recognise that this would require some form of advice for most people, and they make numerous points about the effectiveness of government policy in this area.  

 

For example, the committee criticises the fact that the Financial Conduct Authority has mandated investment pathways for providers without this being replicated in the trust-based sphere. mallowstreet understands that the DWP has discussed the idea of investment pathways in trust schemes.

“We are disappointed that yet again the two pension regulators dealing with savers in near identical positions have failed to coordinate their work resulting in unnecessary risk for members of trust-based schemes and the pension landscape being more confusing than necessary,” they say, recommending joint consultations “unless there is a clear and published reason for a different approach”. 

 

 

MPs are also unsympathetic with the government's decision not to mandate automatic appointments for Pension Wise. David Fairs at the Pensions Regulator had commented during the inquiry that people might not turn up for appointments, thus wasting resources, but MPs want to see MaPS  - which they claim is supportive - test two forms of auto-appointments; for people accessing their pension for the first time, and for people aged 50.

They believe the ‘stronger nudge’ to guidance, which the government said yesterday it would adopt for trust-based schemes – mirroring rules for contract-based ones – “will not be enough” to make guidance the norm.
   

   

“The Minister for Pensions and Financial Inclusion’s previous agreement that having a Pension Wise appointment should be 'the norm' was welcome, but he has since distanced himself from this view,” the report states, adding that “neither the Minister nor regulators would tell us what they thought the usage levels of Pension Wise should be”.  

 

The committee therefore wants to see government set 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. MPs have a minimum target in mind, which would be a steep increase from current levels. “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,” they recommend. 

 

It is unclear how the government could assess whether pots held by different pension schemes were accessed by the same individual, as funds and providers do not hold information about savers’ other pots, nor does any other entity unless the saver inputs it. The UK also has no central ID system companies could use for this purpose. 

 

 

To boost guidance and advice take-up, MPs also support the introduction of ‘enhanced guidance’, which is tailored to an individual but without a recommendation, and ‘limited advice’, a recommendation made based on limited or partial information about them. The concepts were defined by the FCA and the committee recommends that the regulator should provide examples of these “to encourage the wider offering of enhanced guidance and limited advice to the fullest extent allowed by the existing law”. 

 

They go on to criticise the effectiveness of the advice allowance – of which most people are unaware – and of the proposed statement season, saying that given the likely cost and disruption it will create for industry, government must be prepared to adapt or drop its proposals “if the benefits cannot be robustly demonstrated”. 

 

 

Many in the industry have welcomed the recommendations made by the committee, which however holds no formal powers. Former pensions minister and Conservative peer Baroness Ros Altmann said that government and regulators “should urgently listen” to the Work and Pensions Committee recommendations. 

 

She said people are currently “left fumbling in the dark trying to navigate pensions complexity”, and that “pension policy should focus on the ‘people’ rather than the ‘pension pot’”. 

 

“Currently the data being published only shows how much money has been taken out, or how many pots have been accessed... but this tells us little about whether the right decisions have been made,” she said. 

 

The Association of British Insurers was pleased to see a recommendation for a softening of the advice boundary, something it has been calling for to provide input directly to customers. Yvonne Braun, director of long-term savings policy at the ABI, said: “The government and FCA can also go further by making changes to regulations about advice and guidance. This would finally enable the majority and not the minority to get access to advice and guidance." 

 

Renny Biggins, head of retirement at the Investing and Saving Alliance, also welcomed the proposals. “We are particularly pleased to see the recognition that enhanced guidance and limited advice needs to be more clearly defined and industry encouraged to provide this support to the fullest extent allowed,” said Biggins, pointing out that regulators and industry have had to keep putting in place consumer protections on a reactive basis after the pension freedom reforms were sprung on them in 2014. 

 

He added that TISA “fully support the proposal that all future regulatory work is undertaken jointly by FCA and TPR unless there are clear reasons for not doing so”. 

  

The Institute and Faculty of Actuaries said it supported recommendations by MPs to continue to develop CDC schemes, which unlike pure defined contribution, will require actuarial input. 

 

“CDC schemes are a potential innovation for pension savers and this report is a further welcome step in developing practical, innovative schemes for willing employers in the UK,” said pensions board chair Leah Evans.

The Pensions and Lifetime Savings Association said it is supportive of putting greater emphasis on a mixture of retirement products, but believes the recommendation to push Pension Wise take-up much higher is misplaced.

“We don’t think the select committee’s proposals regarding a greater role for Pension Wise in providing guidance – though good in itself – will be sufficient to ensure that everyone gets good outcomes at retirement," said its director of policy and advocacy, Nigel Peaple.

Instead, the PLSA is calling on government to "go one step further" and adopt the association's 'guided retirement income choices' proposals, which would see schemes obliged to provide or signpost support, with minimum product and governance standards in place.