Declining the offer of Pension Wise

Michelle Cracknell, chief executive of The Pensions Advisory Service, acknowledges not everyone will want to take up the offer of guidance - and says that is their choice.

However, under FCA rules Ms Cracknell says pension providers will be required to signpost individuals to the guidance service in ‘wake-up packs’ issued four to six months ahead of an individual’s retirement.

If someone has not sought guidance or appropriate advice when they try to access their money, Ms Cracknell says providers will be required to recommend that they do so.

Pension Wise is also being heavily advertised ahead of the reforms coming into force on 6 April, with a television advertising campaign already underway at the time of writing.

In terms of the actual numbers we can expect, no one is sure. Estimates range from a lowly 2 per cent in a pilot study conducted in partnership with Tpas, to more than 90 per cent.

Though pension providers will direct their members to Pension Wise, Darren Philp, director of policy and market engagement at The People’s Pension, says there is an ongoing debate within the pensions industry about how to manage people who have not received guidance.

Mr Philp cites the Financial Conduct Authority new rules, introduced hastily and without consultation, that pension providers should act as a ‘second line of defence’.

He says providers will be required to identify savers who are at risk of making bad decisions when they seek to access their money and ask further questions about the saver’s intentions. They will then have to issue tailored risk warnings.

Several pension providers spoken to by FTAdviser have indicated they will seek to make these warnings as extensive as possible, going beyond simple warnings over risks to include issues such as future funding risk as a result of a fall in annual allowance once a pension is accessed.

Andrew Tully, pensions technical director of MGM Advantage, says it seems inevitable a significant number of people won’t take guidance or advice and to ensure rules around a second line of defence are “hard and fast”.

He says: “For the market to work properly there needs to be many more people shopping around for the most appropriate solution than was previously the case. If providers work to retain customers and push then into sub-optimal solutions then the market will not be working effectively.”

Monitoring

Ms Cracknell says the government will be monitoring the take up of the service closely and will also evaluate the service to ensure it is working effectively and helping people to make informed decisions at retirement.

Monitoring the number of people who use the telephone or face-to-face guidance service should be relatively straightforward, says MGM Advantage’s Andrew Tully.

He says it is crucial the government monitor the outcomes of those who do actually take guidance: what choices people make after taking guidance whether that is to buy an annuity, go into drawdown, withdraw cash or some combination of those.

He adds it would also be hugely valuable to track what people do with any cash they withdraw, for example, whether they use it to pay off debt.

Mr Tully says it is also vital that the industry tries to minimise the number of people who lose out due to scams and comprehensive monitoring of the market will hopefully help achieve this.

Mike Morrison, head of platform technical at AJ Bell, says what is important is information gathered on the service’s operations is used to adapt and improve Pension Wise, which must be responsive and flexible from the outset.

There is also a complaints procedure. As the service is run by the Treasury, complaints would not go through the Financial Ombudsman Service and would instead be taken to the Parliamentary and Health Service Ombudsman.