Ros Altmann’s proposal needs to be taken seriously. The idea is not hers, it has been part of Just’s policy position for some time, but her amplification is important.
We might consider a Pension Wise appointment akin to a financial vaccination. It introduces us to the idea of spending our pension savings but in a way that should inoculate us from harm.
But there is “vaccine resistance” and though everyone who goes anywhere near their pension pot is likely to be reminded of Pension Wise, only about one in ten of us with the opportunity of a free meeting takes it up.
Ros’ argument appears to be that before anyone gets access to their pot and money from it hits their bank account, they must either have been vaccinated or ticked a box (akin to refusing junk mail).
This prompts three questions in my head
What would the public’s response be to that?
- If the response is positive – will Pension Wise be able to scale?
- If the response is negative – what damage will be done?
- Is there a better default for the public than a Pension Wise vaccination?
Pension Wise achieves success with around 10% of the population. About 10% of the population pays for advice. No study I’ve seen has asked whether those taking guidance go on to take advice or whether they are the ones who have been taking advice anyway. My guess is that there is a large overlap, but that is only a guess.
So in vaccination terms, Pension Wise may be for many a booster or simply reassurance. My Pension Wise session made me feel better but did not change my behavior. Pension Wise must guard against listening to the voices of the pre-converted whose validation of Pension Wise is not much more than a social media “like”,
The tough job of setting people on the pathway to the pathways and setting them against scammers is more taxing in terms of time and energy. I am not a Pension Wise representative, I would like to know how much of a difference they feel they can make within the 40 minute constraint.
And if the people who come to Pension Wise , do so because they feel they have to, to get their money, does that change the nature of the conversation? I suspect it does and it could lead to a much more confrontational meeting, more akin to driver awareness courses.
Of course a driver awareness course is something that miscreants do to avoid penalty points on their license and – having been to one or two over the years – I am a better driver mainly because I don’t want to do one again.
If Pension Wise becomes popular for the right reasons, it is likely to become a victim of its own popularity in that it creates a surge in demand for which there is insufficient supply. If that demand is from people who feel they are at the meeting under sufferance, then the meeting may have changed in character and the demands on those conducting them will be much tougher.
My conclusion on scalability is that the 90% of us who don’t go to Pension Wise , don’t go for a wide variety of reasons and though the most common is inertia, there is nowhere near the urgency to a financial as a Covid vaccination. So any improvement in take-up will be hard won and those who come as a result are likely to be more demanding. A positive response may be hard to scale to and hard to maintain.
Damage to Pension Wise (and to financial guidance)
Every week, millions tune in to get financial guidance from Martin Lewis. Many listen to Paul Lewis’ Moneybox, we like to engage with these people because they are excellent broadcasters and no what matters to us. Being scammed is a matter of concern to us all and both the Money Show and Money Box, raise awareness of scamming.
The FCA’s advertising on television is now being supplemented by pressure on social media platforms not to give scammers the opportunity. There is a real question whether Pension Wise is the right place to prevent scams. When I was most closely involved in preventing scams (the BSPS Time to Choose), one of the most common arguments of the scammers was that they those transferring could expect the opposition of the authorities, as they were exercising their own free will. To those who are determined on a path of action, being told they shouldn’t, can add fuel to the flames.
I am not at all sure that Pension Wise will be able to do more than Martin and Paul Lewis and I am worried that another state sponsored message, may do as much harm as good. In any event it sends out a very negative message to people who are trying to spend their pension. Pension Wise needs to be seen as a positive, can it celebrate and warn against freedoms at the same time?
I fear that making Pension Wise a scam aversion course would risk its future as a positive source of guidance for those who want it and do more harm than good.
Is there a better default?
The question is fundamental. We have Pension Wise, because we have pension freedoms, there was an explicit connection at its implementation and judging by the behavior of the 90% of us who accessing money without advice, we are by and large stripping out tax-free cash and waiting for a long-term plan for our retirement savings.
We have seen a decline in the use of annuities (since 2015) but we have not seen a massive increase in drawdown to replace it, what we are seeing is a lot of small pots being cashed out and some fairly drastic partial encashment that puts the drawdown rate at 8%. This does not add up to great behavior and the result has been further intervention in terms of investment pathways.
There has – apparently – been an increase in pension scamming but I am not sure how this is being measured and whether it is actually the case. We may get something out of the Stephen Timms’ WPSC inquiry but I suspect that much of what is going on, is going on outside the regulatory perimeter and is being picked up by the likes of Angie Brooks in Spain and other centers for UK expats.
Andrew Bailey is suggesting combatting online scams “could be tackled” through the online harms bill, currently progressing through parliament, which puts an onus on online companies to keep their users safe. However, this does not currently include harm from financial investment fraud.
All of these preventative measures involve shutting stable doors, we need to make sure that the horse prefers the stable to bolting.
There is a better way to stop scamming and this is to restore confidence in pensions in the first place. I think this is happening. People are more confident of their workplace pensions because they are giving better value for money and they would be more confident still if there was a default way of converting pot to pension.
There is a real vaccination to the virus of pension scamming. It involves herd immunity and can best be achieved by making pensions “pensions” again.