Here is the main recommendation of Frank Field and the Workplace Pension Select Committee’sfinal report of its inquiry into Pension freedom and choice published today.
We recommend every pension provider offering drawdown is required, by April 2019, to offer a default decumulation pathway suitable for their core customer group. These would be subject to oversight by existing Independent Governance Committees and subject to the same 0.75% charge cap already in place for accumulation in automatic enrolment. People would still be free to choose to invest and spend their own money as they wished. But if they did not make an active choice, they would move into a suitable and regulated default product.
NEST would be included
Rather than impeding a market that is hardly functioning well, evidence from automatic enrolment suggests that NEST may drive better retirement outcomes by forcing other providers to offer greater value or risk savers switching over to NEST to get a better retirement deal.
Pension Passports should be issued
Trials show that single page pension passports increase consumer engagement with pensions options. We recommend that pension providers are required to issue them.
Providers be required to participate in the Pension Dashboard project
We recommend that all pension providers are mandated to provide necessary information to the pensions dashboard, with a staged timetable to enable smaller legacy defined benefit schemes time to comply.
The dashboard would be a single Government sponsored dashboard and be funded by an industry levy from April 2019.
Taking pension spending away from advisers
Frank Field and the Work and Pensions Select Committee are clearly pushing at an open door. The Government want a more engaged public but they want smart decision making more.
The trouble is that there’s no evidence that the “engaged” take smart decisions. If 53% of those who transferred £34.25bn out of DB schemes are reckoned to have got it wrong (FCA sampling) and if these were advised, then it’s small wonder that there’s a crisis in confidence in retail financial services. The crisis begins and ends with the FCA.
Setting up default decumulation pathways for the non-advised and non-engaged seems a good thing, so long as the default is demonstratively better than the annuity default that preceded pension freedoms.
Having just concluded a review of CDC, where W&P gave the collective approach a big tick, it’s not hard to see what Field & Co would like the default decumulator being.
The rest of the recommendations in the paper are a series of proposals to disintermediate. The pensions dashboard is out of the reach of advisers, being in Field’s vision – a Government project; the midlife MOT , something that might have involved advisers , is dismissed
The introduction of mid-life MOTs should not be mistaken for something likely to have a transformative effect on consumer behaviour.
Where Field does talk of advice it is in the lack of its take up
Most people who have exercised pension freedoms have not, however, taken up financial advice. The PLSA found that 32% of individuals accessing their pots under pension freedoms paid for regulated financial advice. The FCA found that the proportion of drawdown products bought without advice has risen from 5% before the introduction of pension freedoms to 30% afterwards. 63% of all annuity sales in the year to September 2016 were made to non-advised customers
and when he listens to those who have contributed to his Pension Freedoms review, he hears only the negatives
Others witness warned,…,that the “advice gap”, whereby consumers are unable to get advice at a price they are willing to pay, needs to be tackled.131 Advice is perceived as expensive, though as the FCA found that 51% of people would not be prepared to pay for advice at any price, it is not the only barrier. A widespread lack of trust in financial advisers, and a lack of engagement with pensions contribute to this effect. Advisers may also turn away potential clients if advising them is not likely to be profitable
Advisers are likely to be offended by this talk, but may be even more offended by the suggestion that robo-advice be put to the test
We recommend the FCA conduct and publish a review comparing consumer outcomes from face-to-face and automated advice
All in all, this paper comes down firmly on the side of default solutions governed by charge caps and against regulated financial advice. It promotes technology solutions and while it does not mention CDC, it clearly has collective solutions in mind when it talks of empowering NEST.
After all, it was Frank Field who said a recent enquiry session
“NEST should have been CDC from the start”.