Former pensions minister Baroness Ros Altmann is calling for Pension Wise guidance to be made mandatory before people are allowed to withdraw money from their pension, according to her submission to the Work and Pensions Committee inquiry on pension freedoms.
Pension Wise is a service set up in the wake of pension freedom rules to offer financial guidance online, over the telephone and in some cases face-to-face to those looking to take money from their retirement pot from age 55.
It is paid for by the financial services industry, which is also supposed to help direct people to it once they express an interest in withdrawing their pension.
Under current rules, only savers with a defined benefit pension pot higher than £30,000 are obligated to seek regulated financial advice.
Baroness Altmann wants the Financial Conduct Authority (FCA) to require “all pension providers to send a letter to customers who are approaching the age at which their pension matures to direct them straight away to Pension Wise”.
She said: “I have tried to introduce a requirement into the Financial Guidance and Claims Bill that would make Pension Wise mandatory for anyone who wants to withdraw money from their pension fund, unless they have a financial adviser.”
Last June, the Financial Conduct Authority (FCA) revealed, in its Financial Advice Market Review Baseline report, that only 7 per cent of those aged over 55 plus and planning to retire in the next two years had used Pension Wise.
Baroness Altmann said: “I believe that not enough people know about the service or realise how good it is.
“Those who do use Pension Wise report very high levels of satisfaction and are able to understand the pros and cons of taking money out of their pension fund, and the reasons why they may just want to leave it alone.”
According to Baroness Altmann, the new pension rules are not well enough known and “people could benefit from speaking to a Pension Wise guidance expert to understand the pros and cons of various courses of action”.
She said: “They would also then be able to avoid falling for scams so easily and have a better understanding of what type of features their pension has.”
Steven Cameron, pensions director at Aegon, said guidance might be helpful for some.
However, for many, “it can’t provide the same degree of protection [as regulated advice], particularly as retirement decisions are highly personalised”.
Mr Cameron said he doesn’t believe making Pension Wise mandatory would work.
“It would mean that you wouldn't be able to do anything with your pension until you spend half an hour on the phone with someone in Pension Wise.
“Compelling people to go for guidance or to seek advice would be a difficult measure to include. However, I fully agree that we should be strongly encouraging people to get the support they need.”
Commenting on the provider’s submission to the Committee, Mr Cameron said that “those who seek advice will typically be in a far better position to make an informed decision regarding their retirement options than those who go it alone”.
He said: “Aegon recommends anyone considering their retirement options first seeks advice.
“Seeking advice allows individuals to gain a fuller understanding of what their retirement needs are, compared to their wants, allowing them to arrive at more realistic and appropriate objectives and to make decisions consistent with these.”
Mr Cameron also argued that advice shouldn’t be a ‘one off’, but on an ongoing basis.
He said: “The pension freedoms require individuals to make decisions on a continuing basis to reflect their evolving needs as well as in response to changing investment conditions.”
The inquiry, launched last month by the Work and Pensions Committee, is investigating whether the pension freedom reforms are working. The deadline for written submissions ends today (23 October).
The vast sums being withdrawn from retirement pots by the over-55s since the 2015 pension freedom reforms were introduced has pushed MPs to act.
HMRC figures showed £1.86bn was withdrawn in the second quarter of 2017, and in total £10.8bn has been withdrawn from pensions since the freedom changes were introduced in April 2015.
Royal London is another provider which has submitted a response to the inquiry, advocating for a change in the way HM Revenue & Customs taxes pension lump sum withdrawals.
maria.espadinha@ft.com
