Govt warned over ‘creeping nationalisation’ of financial services


A parliamentary report into the pension freedoms risks encouraging “over-engineering” and a “creeping nationalisation” of finances services, experts warn.

Despite citing fears of a lack of transparency around Pension Wise, Parliament’s Work and Pensions select committee this week recommended expanding the service to include property wealth, benefit entitlements, tax implications, care costs and debts.

Hargreaves Lansdown head of pension research Tom McPhail says: “I’ve got some real problems around this creeping nationalisation of the financial services industry, and this idea that people like what Pension Wise does, but it doesn’t work very well.”

FCA figures show 204,000 people accessed their pension using the flexibilities between April and June, but just 19,091 took either face-to-face or telephone appointments with the Government’s guidance service between April and August.

McPhail says: “There’s lots of evidence that we are failing to meet people’s needs through Pension Wise, but the answer to that appears to be to levy more money from the pensions industry and to throw it at public services.

“The point of the free guidance is to address where the market can’t economically fill that gap. But it’s very much unproven that the industry can’t fill that vacuum.

“Depending on the results of the Financial Advice Market Review and the guidance review alongside that, it’s appropriate to push back and ask whether this gap could not be better filled by the industry.”

Clearwater Financial Planning managing director Duncan Carter adds that expanding services risks a “nanny state approach”, and suggests the Government risks “over-engineering” the freedoms reforms.

He says: “There are already too many different parts at play here, and there’s no clear structure. The Government should try to make it more useful instead of complicating it and making it more costly.”

Apfa director general Chris Hannant agrees: “We already have three overlapping service in the Money Advice Service, The Pensions Advisory Service and Pension Wise, which in my view is at least one too many.

“So it’s important that while help is provided, it shouldn’t overlap with what is already out there, and especially in the private sector.”

The Treasury this month launched a review into the various guidance services available to savers. Policymakers are considering “rationalising” the services offered by the Money Advice Service and Pension Wise to reduce duplication between the offerings.

Old Mutual Wealth pensions technical specialist Jon Greer says one unintended consequence of expanding Pension Wise would be further confusion on the boundaries between advice and guidance.

He says: “The advice liability is the clearest distinction between the two, but only 18 per cent of people are aware of the protections offered by full advice that are absent from guidance.

“If the Government does further blur the lines by expanding Pension Wise guidance, it must also be accompanied by a very clear explanation that no such protection exists.”

However, Radcliffe & Newlands chartered financial planner Mel Kenny argues there remains a role for state-backed guidance programmes.

He says: “The problem with going to see a firm like Hargreaves is that they might offer an hour long session, but it’s really geared towards getting more money on their platform.

“I’m not sure they would be too keen to talk about topics like debt.”

The Committee’s Recommendations

  • Pension Wise should offer more personalised guidance to encompass users’ broader financial circumstances
  • Provider signposting to Pension Wise should be improved via stricter guidelines from the FCA
  • The Pension Wise website must be overhauled to include income calculators and more illustrative examples
  • The Government should regularly publish updates about the performance of Pension Wise, and establish a research programme to track consumer outcomes
  • It should also publish a timetable for development of a pensions dashboard
  • The FCA should establish more clearly the distinction between advice and guidance, and the definitions of safeguarded benefits
  • There should be a new drive of anti-scam publicity to protect consumers