The Work and Pension Select Committee has published its report into how we are accessing our pension savings.
It is full of good things and is a major contribution to thinking in this area pulling together the views of those in the private and public sectors under the Chairmanship of Stephen Timms.
The report remarks that
Six years on (from the introduction of the Pension Freedoms), there remains no framework against which to evaluate the success of the freedoms or make judgements about the need for—or effectiveness of—support interventions
Throughout the report’s 73 pages we are reminded that the two interventions of this century that impacted people’s pension savings the most – auto enrolment and the freedoms – are still young in policy terms.
And the report moves with astonishing speed from one idea to another, calling for an investigation into the decoupling of tax free cash (to improve decision making on the remaining pot) , for the FCA to consider regulating contract based CDC plans, for Pension Wise to be nudged at us whenever we think pensions, for mid-life MOT’s , simpler statements and statement seasons, for innovation through hybrid products, for mix and match purchasing using investment pathways, for the better promotion of advice and so on.
With so many solutions under consideration , it is hard to work out the big idea. Guy Opperman tells the Committee at one point that the entire focus of Government policy is to make pensions simpler. But Pensions are clearly not getting simpler. They appear to be getting more complicated .
Overall, the Committee supports the Government’s intentions to make pensions simpler but suggests that recent changes, such as the increase to the Normal Minimum Pension Age, have had the opposite effect.
It added that “simplicity alone is not enough to improve outcomes for savers” adding that the Government needs to “increase saver engagement, encouraging and enabling people to make their own decisions, or take a more interventionist approach with passive savers to ensure that they do not default to a decision against their best interests.”
Which gets me thinking, just how will this vast array of information and views collected , collated and published by the Committee get used. I hope that it will encourage policy makers to consider what is actually going on when people try to get to their money.
People are accessing their savings , but we really don’t understand what is behind their behavior. LCP, who feature very prominently in this report, are distressed that people are doing this in a hare-brained way. LCP rarely open their mouths without evidence and I’d be interested in hearing more about their proposals for de-coupling (for instance).
Much of what is being said about Pension Wise is based on anecdotal evidence that people find Pension Wise useful, but there is no evidence of what difference it makes to their behavior. The Pension Dashboard looks like being popular, when it arrives, but again there is no plan as to what it will lead people to do. Indeed the report supports the view that the dashboard should do nothing but show and tell people what they’ve got.
Paul Lewis, writing in Money Marketing , asks
What does ‘guided signposting’ mean for the advice gap?
He concludes that
In nearly 40 years of financial journalism, no one has asked me to ‘signpost’ them about their money
The 73 pages of the report feel like “guided signposting” is our best bet with nudging and simple statements helping us to take life-changing decisions on how we turn our pots to pensions.
But I’m not sure that all this pensions paraphernalia adds up to a simple system – as the Pensions Minister would have it. It seems like a lot of clutter with words like innovation, regtech, robo-advice and dashboards being thrown around to make us feel we are making some progress.
The simple thing that people want – and I suspect that Guy Opperman wants, is to get back to getting paid a pension at a reasonable rate. “Accessing a pension pot” is not a simple thing to say, or think about or do. For all the pathways and guidance we still do not know how well the pension freedoms are doing in helping us turn pots into pensions.
But if the result of this report is that the
the Department for Work and Pensions and the Treasury jointly produce an annual assessment evaluating these measures holistically.
We will be going some way towards working out what progress is being made. And Stephen Timms signs off his report with an aspiration about how it will be used.
We would expect several of the recommendations we have made in this report to appear in that publication.
Plenty of sensible observations but it still manages to miss the point about retirement planning in a social context requiring personal responsibility. The issues raised by decumulation, partly arising due to novelty, are trivial compared with the education of decision making in accumulation. Since one is a mirror image of the other, it seems more obvious to start with accumulation. We can note for instance that regulated advice in the earlier stages tends to assume drawdown and so the two phases are effectively addressed in one plan. Saving adequacy is tested for in terms of sustainable real spending assuming it’s your capital (plus state pension) you will be spending. An annuity is a bit of a red herring here because as long as it is deferred well beyond retirement age it doesn’t affect the numbers much.
The other key takeaway from financial planning is that it is not limited to pension accounts but is holistic. That doesn’t necessarily make it more complicated but it does tend to make it more relevant and engaging.
The question then is not to how to deliver decision tools that support individual choices but how to support the whole plan across its whole life. As a firm using direct client interaction with modelling, this is what we have designed and we’re confident it is achievable at scale. But it does require redrawing g of the regulatory perimeter as currently interpreted – as the Committee suggest. I’m not convinced though that the perimeter couldn’t simply be reinterpreted. Informing self selection can be personal and specific to a product without involving ‘evaluation’.