Reforms introduced in April 2015 gave people aged 55 and over greater freedom to choose how and when to access their defined contribution pensions. Where previously most people were required to purchase an annuity, they now have access to a range of potential options regardless of circumstances. These include drawing down income from a fund that remains invested or taking a pension as cash. The Government also established Pension Wise, a free guidance service, to support people in making these complex decisions. Support is also available from other free sources, pension providers and independent financial advisers. However, we heard concerns that the range of support on offer leaves gaps, particularly in the affordable middle ground between free general guidance and expensive independent advice.
There is a shortage of information about the use being made of pension freedom. This makes assessing the progress of the reforms very difficult. We had particular concerns about the near complete lack of data about Pension Wise and the absence of a research programme tracking consumer outcomes. We recommend that these omissions are addressed with urgency.
Pension freedom gives many more people ready access to what are in many cases are large pension pots. This increases the potential for scamming. The Government and regulators have rightly focused on consumer awareness in mitigating this risk. However, we think they could do more and recommend greater anti-scam publicity and stricter reporting requirements for pension providers.
Despite the dearth of Pension Wise statistics, it is apparent that take-up of its services has been lower than many anticipated. We recommend stronger signposting by pension providers. We also recommend Pension Wise gives more personalised guidance incorporating an enquirer’s wider financial circumstances. We had particular concerns about the static Pension Wise website and recommend it is improved to enable more interaction, including through income calculators and illustrative examples tailored to individual circumstances. Pension freedom also adds to the already strong case for a pensions dashboard, which would allow people to see all their pensions savings in one place. We urge the Government to maintain the current momentum behind the proposal by coming forward soon with a timetable for its introduction.
Pension freedom is not yet operating entirely as it should. While we heard impressive evidence of how the advice and product markets were responding to fill gaps, a lack of regulatory clarity is endangering pension savers. We call for clarification of the distinction between guidance and advice; the definitions of safeguarded benefits; and protections in providing advice to insistent clients. We also expect to see a reduction in the use of jargon and complex pricing structures.
Pension freedom has yet to settle down and the publication of data about its operation and subsequent consumer outcomes will give a fuller picture of the effects of the reforms. Our inquiry focused on guidance and advice but there are other areas of concern, not least levels of charges, to which we may return. Improvements in guidance and advice are crucial to the success of the policy and we will monitor progress closely. It is right that people should be able to choose what to do with their retirement savings. However, freedom to choose is not enough; people must have freedom to make informed choices.