Webb dismisses guidance compulsion despite take-up fears

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Pensions minister Steve Webb defended the government’s under-fire guidance pledge to pension savers but dismissed any notion of compulsion for a service plagued with predictions of low take-up, during a fiery committee meeting in the House of Commons this morning (4 October).

In a meeting of the Pensions Bill Committee, members pressed the point of potentially low take-up, especially given there was no compulsion to access the guidance before drawing one’s pension pot.

Mr Webb conceded that “an awful lot of people with tiny pension pots who will just cash out” and argued a “set of people at the top will go straight to regulated financial advice”. He said the key was for the “right people” in between to take up the guidance.

Several recent pieces of research have projected vastly different estimates for how many people would use the free, impartial guidance provided to retirees once the pensions reforms come to pass next April.

A Chartered Insurance Institute poll found 92 per cent might make use of the service, while a pilot project carried out by Legal and General and The Pensions Advisory Service suggested just 2.5 per cent might do so and Tpas chief executive Michell Cracknell separately predicted initial take-up of 25 per cent.

Shadow minister Gregg McClymont cited the latter in his criticism of the government’s plans, but pensions minister Steve Webb responded that the figure was likely to be somewhere in-between the two.

Mr Webb stated: “We won’t know demand until next April. Obviously at the point we set the levy we’ll have to have an assumption, so that will have to be sometime before April.”

When asked about what can be done to promote the guidance, Mr Webb rejected any sense of compulsion, called for by some, and said that “it can’t be a condition to access your own money to have to go through a guidance session.

“Providers must flag it up, but we have to treat people as adults,” he added.

Mr Webb continued, though, that the government wants to avoid a tick-box mentality which encourages providers to get customers to sign a piece of paper absolving them of any risk of not taking guidance, arguing that “there must be proper content and sign-posting”.

Providers speaking to FTAdviser have flagged up the need to amend contracts and introduce new risk warnings to mitigate the risks of customers accessing funds without taking guidance.

Mr McClymont, MP for Cumbernauld, Kilsyth and Kirkintilloch East, also complained about the potential for people to run out of money in retirement after taking their pension pots, to which Mr Webb jibed in response that he would be surprised to see “queues of Lamborghinis outside benefit offices in North Lanarkshire”.

Further detail was also given by Mr Webb on the details of the guidance, with a reassurance that both the length of the sessions - widely believed to be half an hour - and the time between requesting the guidance and receiving it - suggested as 14 days - were not yet hard-wired into legislation and there was likely to be flexibility.

He added that the Department for Work and Pensions was undertaking ongoing research on the target market, testing different approaches to roll-out and refining estimates of cost, with the latter to be published in a progress report before the end of this year.

Mr Webb also confirmed that the guidance would be “more than just a portal to advice” and would include discussions on tax implications and longevity estimates.

He added that while it was likely there would only be one session, it “will not be the end of the journey”, with the service providers still there to provide ongoing assistance.

Again, responding to criticisms from Mr McClymont, Mr Webb also mentioned that he would be surprised if the product landscape looked “radically different” from how it does now, suggesting it would be more like “a decade of innovation” and that just getting the right systems in place would be enough of an issue for providers.

peter.walker@ft.com