Pension freedom guidance and advice Contents

2 Assessing pension freedom

8.Witnesses told us that assessing the success of the pension freedom reforms was difficult. As the Personal Finance Society said, “we are all reviewing in the dark”.22 This was because of a lack of both data on actual performance and benchmarks, targets or predictions against which to compare that performance.23 While some limited industry statistics were published during the course of our inquiry, information about Pension Wise remained particularly sparse.

Pension Wise data

9.Statistics on Pension Wise have so far only been published on an ad hoc basis, notably in response to Parliamentary Questions and in evidence to our inquiry.24 The Treasury told us that TPAS completed 6,850 telephone Pension Wise appointments between April and August.25 Citizens Advice completed 12,241 face-to-face appointments over the same period.26 This suggests that fewer than one in ten people accessing their pots had a Pension Wise session.27 The Government made no formal predictions about demand,28 but the FCA told us in July that Citizens Advice was running at 10-15% of its capacity to provide face-to-face appointments.29 The Minister said that there had been 1.5 million unique user hits on the Pension Wise website.30 However, comparisons with pensions industry websites suggested that this figure was not particularly high.31

10.More than 90% of people who have used Pension Wise have been satisfied with the service.32 As well as satisfaction, Pension Wise exit polls record customer confidence and intended next steps.33 The subsequent actions of Pension Wise customers are not tracked. The Minister told us that the Treasury was in discussions with the Government Digital Service about the content and publication schedule for regular Pension Wise statistics.34

11.A July 2015 response to a Parliamentary Question said the Government’s monitoring of the Pension Wise service was “part of a wider programme of evaluation that the government is undertaking to ensure that Pension Wise is working effectively, delivers value for money, and meets consumer needs”.35 We saw little evidence of such a programme. Teresa Fritz, of the Financial Services Consumer Panel, encapsulated the widespread frustration at the lack of data in saying that “for those of us outside looking in trying to see what is actually happening, there has not been a great deal that we have been able to get a handle on”. The urgent publication of statistics was vital for organisations such as hers which wished to analyse trends, identify problems and suggest remedies in order to better protect consumers.36

Industry data

12.The FCA and The Pensions Regulator (TPR), the regulator of work-based pension schemes, both published survey reports on the day of our final evidence session for this inquiry. The FCA found that 204,000 people accessed pension pots between April and June 2015 (Q1 2015), the first three months of the reforms. This was more than double the number in the same period in 2013, partly reflecting customers delaying accessing their pots until the reforms had taken place. Annuity sales were far lower: 12,000 compared to 90,000 in Q1 2013. By comparison, 121,000 customers had opted for cash withdrawal and 71,000 had accessed some form of income drawdown product.37 The TPR found that 93% of occupational pension savers had access to a decumulation (the process of converting savings into retirement income) option within their scheme, falling to 18% for drawdown, though availability is likely to increase as providers adapt to the reforms.38 Drawdown was far more readily available to personal pension savers.39 In addition, the Association of British Insurers (ABI) have produced some statistics on payments made since the reforms. They found between April and June 2015, £2.5 billion of lump sum and drawdown payments had been made to customers and £2.3 billion had been invested in annuities (£1.0 billion) or funds that enable subsequent drawdown (£1.3 billion).40

13.Combined, the industry statistics provide a helpful snapshot of the initial aggregate progress of the reforms. However, they are inherently limited. The ABI noted that, given the market was at such an early stage of development, data “inevitably focuses on service metrics rather than testing outcomes for consumers”.41 While we have some idea of what decisions are being made, it is difficult to assess whether these are the right ones.

Assessing longer-term consumer outcomes

14.Witnesses told us that continuing monitoring of consumer behaviour was integral to assessing the success of pension freedom and identifying areas for possible improvement. Initial customer satisfaction is not necessarily a good measure of eventual outcomes. Huw Evans, Director General of the ABI, stressed that someone happy with a pension decision now might not necessarily be so in several years when the full consequences became apparent.42 Chris Curry, Director of the Pensions Policy Institute, said that the policy would need to be monitored “over a long period of time to see how the decisions made now pan out through people’s retirements”.43

15.We heard a long list of additional data that were required. Teresa Fritz called for defined contribution pension pot sizes to be cross-referenced with other sources of retirement income to give a more complete picture of the finances of those who have accessed their pensions.44 It was also important not to restrict monitoring to the minority of customers who had taken Pension Wise guidance.45 However, when we pressed the Minister on customer outcome data she was “not sure that either the Treasury or the DWP gets that sort of information”, adding that the Government had been “relying to quite a large extent on what the ABI has been collecting in terms of data and what people are deciding to do overall”.46

Shedding light

16.The Government’s reticence in publishing statistics on the effects of its pension freedom policy, a full six months after the reforms, is unacceptable. The scarcity of information regarding Pension Wise in particular is not conducive to effective scrutiny. It is also not conducive to effective policy: it would be fortunate in the extreme if such radical change operated as hoped without any need for adjustment. Regular collection and reporting of the takeup of guidance and advice options on offer, and the decisions taken, is imperative. This should also provide some assurance that another mis-selling scandal is not on the horizon.

17.We recommend the Government publish, or require its regulators to publish, statistics on Pension Wise and the advice and pensions markets on a quarterly basis, encompassing:

a)customer characteristics including pension pot size and other sources of retirement income;

b)take-up of each channel of guidance and advice;

c)reasons given for not taking up guidance and advice;

d)subsequent decisions taken; and

e)reasons given for those decisions.

18.While we support pension freedom, its long-term effects remain highly uncertain. The full picture of eventual consumer outcomes will emerge over many years. These outcomes must be monitored closely. We recommend that the Government initiate a rolling research programme to track the longer-term consequences of pension freedom decisions. We expect the Government to detail its approach to assessing the long-term effects of the reforms in its response to this Report.

22 Personal Finance Society (PFA0017)

23 E.g. Just Retirement (PFA0033)

24 HL 1525, 30 July 2015

25 HM Treasury, personal communication. Michelle Cracknell, Chief Executive of TPAS, told us that her organisation had conducted 9,180 (Q2), but this included appointments that ended early.

26 HM Treasury, personal communication

27 In total, there were fewer than 20,000 completed face-to-face and telephone Pension Wise appointments between April and August 2015. The FCA found that more than 200,000 people accessed their pension pots in April-June 2015 (FCA pension freedoms data collection exercise: analysis and findings, September 2015). The true figure is therefore likely to be well below one in ten.

28 HM Treasury (PFA0043)

29 Work and Pensions Committee, 1st Special Report of Session 2015-16, Progress with automatic enrolment and pension reforms: Government and Financial Conduct Authority responses to the Committee’s Fourth Report of Session 2014-15, HC 375

30 Q101 (Harriett Baldwin MP)

31 The Hargreaves Lansdown website, for example, had 13.5 million unique users in the first six months of 2015 (Q48, Tom McPhail).

32 Q101 (Harriett Baldwin MP)

33 Q18 (Michelle Cracknell)

34 Q103 (Harriett Baldwin MP)

35 HL 1525, 30 July 2015

36 Q8 (Teresa Fritz)

37 Financial Conduct Authority, FCA pension freedoms data collection exercise: analysis and findings, September 2015, p3

38 The Pensions Regulator, Survey on flexible pension access, September 2015, p2

39 Financial Conduct Authority, FCA pension freedoms data collection exercise: analysis and findings, September 2015, figure 3

40 Association of British Insurers news release, Payments made to savers since the pension reforms reach nearly £2.5 billion, ABI stats show, 2 September 2015

41 Association of British Insurers (PFA0029)

42 Q35 (Huw Evans)

43 Q20 (Chris Curry)

44 Q9 (Teresa Fritz)

45 Q20 (Chris Curry)

46 Q103 (Harriett Baldwin MP)