You can read an extensive article on the matter in Pension Expert, but I will summarise
Stephen Timms and the WPC wanted Pension Wise appointments to be made automatically for people approaching the point where they wanted to consider what to do with their pension savings and the DWP said “no”. This leaves the “stronger nudge as the DWP’s tactic to improve take up of the free guidance.
Stephen Timms and the WPC wanted to give Pension Wise a target of seeing 60% of its available audience, the DPW said “no”. The DWP argued that you couldn’t second guess what people were going to do , the industry suggested that Pension Wise would not be resourced for this.
The question that no-one is asking is “is this a vote of no confidence in Pension Wise and MaPS from the DWP and in particular the Pensions Minister. I am quite sure that Guy Opperman would say it wasn’t but many think it is. Pension Wise is like a sacred cow that cannot be criticised but whose virtue is given rather than realised.
If Pension Wise was to be judged by outcomes, it would need to be judged by the FCA’s retirement income survey. On that basis, there is so little consistency or sense in the way we are accessing our pension pots, to suggest that Pension Wise is not working. Whether people who have been to Pension Wise appointments make better decisions is yet to be proven, but that most people accessing their pots are neither going to Pension Wise or taking advice suggests that the system is not working at any level.
Another way of looking at the problem of choice.
What we know works is defaults and opt-outs. People will generally accept decisions made on their behalf when it comes to retirement planning. People will accept contributions being taken out of their salary, will accept the choice of workplace pension, will accept the fund into which they are defaulted and will accept that the money in their pot is locked away to their minimum normal retirement age (known to be 55 and increasingly understood to be later than that in years to come). Those who opt-out are fairly consistently around 10% of savers and they include the mega-pensioned with LTA issues, those who are conscientious objectors (perhaps on religious or ethical grounds) as well as those for whom saving doesn’t make sense.
Were the Government to introduce a default means by which people got their savings back, it would be entirely consistent with what has worked so far. We do not need guidance or advice to build up a savings pot, why should we need such things when we come to have it back as a pension?
And here is the second big challenge from WPC as they come to the end of
Protecting pension savers–five years on from the pension freedoms: Accessing pension savings
We have the DWP’s response and await the Financial Conduct Authority response to the Committee’s Fifth Report. In particular I am waiting for the FCAs response to the recommendation posed on CDC.
We recommend that the Financial Conduct Authority consider whether there is also a case for developing contract-based CDC schemes and publish its findings.
My view
The evidence from Tom McPhail’s review of Pension Wise is that it provides an admired service by those who use it , but not enough people use it and there’s too little evidence to know whether those who use it, make better decisions because of it.
As with their rejection of the decoupling of the Pension Tax Free Cash Lump Sum, the DWP are making it clear that they want people to treat their workplace pension as a pension.
Without a clear way of doing this, people will continue to flounder with pension freedoms as they are doing now.
We are not hearing the dissatisfaction of ordinary people with what is being offered but low take up rates of Pension Wise and the paucity of pots that are being drawn down in a sustainable way suggests that people are not clear about what they are supposed to be doing.
As in Australia, where the Retirement Income Covenant will, from July, require those operating workplace pensions to offer a clear plan for savers stopping saving and starting spending. That approach is also needed here.
The investment pathways is a start but it is not enough, auto-enrolment tells us that people, while valuing the choice to do something else, want a single pathway which they can take if they cannot choose.
In my view, that pathway is a pension. We have rejected annuities as generally not fit for the purpose , we have found drawdown very hard, the time is right for a new default to emerge, that should be the Plan B.
Pension Wise may or may not work, if it does , it will mean we have a reformed market that returns the nation to using pension pots to pay a wage in retirement. But if Pension Wise continues to fail in that endeavor, we need a default – I think that the contract based CDC plan (aka a retail CDC fund) is Plan B.
Pension Wise could (an in my opinion should) become a way of explaining how workplace pension pots turn into pensions. But it will need a better product than the investment pathways, none of which look good enough and it will need a product that is equally useful whether the pot is from a personal pension or a trust based scheme.
