The work and pensions committee is calling for a full review of the pensions advice allowance, new definition of enhanced guidance, and better advice take up in a wide-ranging report assessing the government's pension freedoms policy.
The report 'Protecting pension savers—five years on from the Pension Freedoms: Accessing pension savings', published this morning (January 18), highlighted a number of areas where savers need more support with their pensions.
Pension freedoms, implemented in 2015, was a radical reform of pension rules at the time, allowing many to access their savings freely for the first time. With this came difficult decisions, which many savers were not equipped to make.
In today's section of the MPs' work assessing the reforms, they focused on accessing pension savings. The MPs said the government and regulators needed to play a more active role than they did when the pension freedoms were first introduced to help guide savers.
They should collect more research and data on the use of pension freedoms and ensure that savers have the information and support they need to make good decisions about what they do with their pension savings.
Overall, the MPs found the thrust of pension policy has been revolving too much around what is happening to pension pots, rather than the individuals who are relying on this money for their later life security.
In line with this they also examined people's access to advice, in particular the advice allowance, advice/guidance definitions, and advice take up.
Here is what they found:
The MPs said due to a lack of awareness and lack of demand the advice allowance was not working.
It stated that its design has made it unusable by most savers, and while the broad aim of the policy was correct, it has been poorly executed and now needs to be rethought.
The advice allowance, which came into being in April 2017 following a recommendation in the Financial Advice Market Review, allows pension scheme members to withdraw £500 a year tax-free, up to three times in their life, to pay for financial advice.
However, uptake has been low with few providers offering this service to clients.
The MPs have suggested the government should remove the annual limit and uprate the overall advice allowance in line with inflation each year.
The committee has also called on advisers as well as the Money and Pension Service to take a more proactive approach and signpost savers to this allowance.
Where it does not make sense for savers to use the allowance, such as those with small pot or defined benefit schemes, advisers should instead look to offer triage services, the MPs said.
But back in June 2021, MPs were told that increasing the amount of cash savers are allowed to take from their pension pot to access advice will not be beneficial to most savers due to supply issues with advisers.
The government and regulators told the committee there may be a more significant role for the pensions advice allowance in future.