Pension FreedomApr 26 2018

Opperman's pension freedom boasts pulled apart

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Opperman's pension freedom boasts pulled apart

The pensions industry warned of dangers in pension freedom and choice just moments after secretary of state Guy Opperman praised ditching the requirement to buy an annuity a success.

A panel of established industry players, including The Pension Advisory Service's (Tpas) Michelle Cracknell, Just's Stephen Lowe and the Association of British Insurers' Rob Yuille warned intervention was needed to mitigate any bad consequences form the pension reforms.

Speaking at the ABI conference today (26 April) they warned consequences of bad choices may not be known for 15 to 20 years and interventions like engaging with savers earlier in life, called for in an ABI report published today, had to be put in place urgently.

Mr Opperman had told the conference pension freedoms had been a success and there was evidence people were not "recklessly squandering" their money but were taking their time making decisions about their retirement.

He called on the industry to be more proactive in promoting the freedoms as successful and good for consumers, although he did back the introduction of a midlife MOT, recognising a lack of financial capability among UK consumers.

But the panelists said the worst was yet to come if no action is taken.

Ms Cracknell, chief executive of Tpas, said: "I don't think damage has occurred during the first couple of years because they weren't significant pots. 

"But that is no excuse to sit back and wait for disaster to happen. We know what could potentially happen and we need to put in place interventions to ensure it doesn't happen."

She said most of what happened in the first two years was tidying up small pots and not sorting out a long lasting retirement income.

This was partly because people still relied on defined benefit pots for their retirement, Ms Cracknell said.

She said: "They weren't talking about retirement. It is gradually changing and more of the Pension Wise appointments are people that want to make decisions about retirement overall. 

"It is still only a small proportion but we have got to be ready to accept more and more people are going to have defined contribution pots, which are important to their overall retirement income."

The panelists said measures such as better financial education, better provider information, nudges and a warning barometer on the pension dashboard had to be put in place to prevent future harm.

Bu Ms Cracknell said there was also a case for the industry to work better together.

She told of a provider who had been struggling with pension transfer cases, thinking the receiving scheme was illegal but not being able to prove it. 

When they reached the end of their three months delay period and had to make a decision on the transfers, they sent out letters to their customers urging them to seek help from Tpas.

She said: "It is those sorts of initiatives about working together that get the best for people and is going to be really important going forward."

Mr Lowe, director of Just, agreed more needed to be done urgently and warned the consequences of bad decisions would not be felt for a long time.

He said: "When you look at [research on] the financial capability of those in middle Britain making the decisions almost every one confirms people are not equipped and knowledgeable to make an informed decision. 

"Putting in place those early indicators - that dashboard that says the dial is moving from green to amber - that is crucial.

"We have a duty for the reputation of our industry to make sure we put in place those early warning signs. 

"We won't see the hard evidence until things materialise but there are enough clues to say we should be intervening and supporting more."

The five interventions tabled by the ABI today (26 April) include tailored and phased customer communications throughout a saver's life; a mid-life MOT; prompts for people to use guidance; overhauling retirement risk warnings; and improving in-retirement communications.

carmen.reichman@ft.com