Pensions minister Guy Opperman has ruled out the prospect of automatic Pension Wise appointments for 50-year-olds as it could cost levy payers up to £80m extra a year.
In a letter to Work and Pensions Committee chairman Stephen Timms, Opperman backed the creation of a “mid-life MOT”, and confirmed the government was working with the private sector to deliver it, having previously trialled the concept in 10 local enterprise partnerships.
He reiterated the relevance of Pension Wise guidance and said it was important that the stronger nudge encouraged companies to refer their members to the service, but said setting up automatic appointments would require primary legislation and be prohibitively expensive.
“To estimate the cost of auto-enrolling all pension savers aged 50 into Pension Wise, we estimated the number of individuals aged 50 in the UK that are enrolled in a workplace pension in a given year. We then multiplied this by the estimated cost range of facilitating a Pension Wise appointment (including cancellations of appointments),” he explained.
“These are very basic estimates and should not be regarded as definite. On this basis we estimated the cost could potentially be in the range of £45m-£80m per year. These are illustrative estimates of the potential cost which should only be used in the context of the caveats explained above. This cost would be borne by levy payers.”
The prospect of automatic appointments has been raised before, but has commonly been regarded as too costly and ineffective.
Speaking at a WPC hearing in September, John Greer, head of retirement policy at Quilter, said auto-appointments could have the opposite effect to that intended.
“It could well be perceived by savers as yet another barrier to accessing their pension pots, particularly if someone has already made a decision on how they want to access their money,” he said.
“Plus, it remains to be seen whether Pension Wise has the capacity to scale up their service to the levels required to offer guidance services on an opt-out basis, without sacrificing the quality service levels that make the sessions effective in the first place.”
Laurel and Hardy
In a blog post published on Thursday, David Fairs, executive director of regulatory policy, analysis and advice at The Pensions Regulator, hailed impending introduction of new measures designed to increase guidance uptake.
The Department for Work and Pensions is amending the current legislation to include a “stronger nudge”, by requiring trustees and managers to ensure individuals have either received or opted out of receiving appropriate pensions guidance before proceeding with their application to access or transfer their pension.
Fairs highlighted that 94 per cent of savers who use Pension Wise report being either “very” or “fairly” satisfied with the result, but that only 14 per cent of savers accessing their defined contribution pot for the first time bother to access it.
“Would so few first-time buyers take guidance when assessing their mortgage options or house buyers ignore the risk of spending hundreds of thousands on a property without having a survey completed?” he asked.