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Nic Cicutti: Auto-enrolled pension guidance is a no-brainer

MPs should ignore their whips and reinstate the Financial Guidance and Claims Bill amendment

The Government’s Pension Wise service is a wonderful organisation. Or, at least, it is seen as such by the vast majority of those who use it.

Indeed, according to a recent Money Marketing article, 88 per cent of people who used Pension Wise said they had a fairly or very helpful experience.

More than two-thirds said it made them “think through their options more thoroughly” and over half (55 per cent) said it made them “consider the longer term more than they would have done otherwise”.

The person who cited these figures (approvingly, I imagine) is Tom Selby, a highly regarded former journalist at Money Marketing and now senior analyst at AJ Bell.

Given his generally enthusiastic reference to this poll in that column, you would imagine Selby would be in favour of people being automatically enrolled into guidance if they wanted to take benefits under pension freedoms or transfer benefits.

So you would also expect him to be disappointed by the news last week that an amendment to the Financial Guidance and Claims Bill that would have seen this happen has been removed.

Now, instead of being automatically enrolled into guidance, providers must ask customers if they have received “appropriate” pensions advice or “appropriate” independent financial advice.

If the customer says they have not had either, the provider will have to recommend they do so and ask them if they want to wait until they have done so before accessing their pot or transferring, or if they want to go ahead without it.

But Selby was among the first to come out in support of the change: “The original ‘auto-guidance’ amendment was a bit of a dog’s breakfast,” he told Money Marketing.

“Automatically enrolling members into guidance for each transfer or every time they took money from their own pension pot – when they have already decided what they want to do – would have caused massive delays and huge complaints.”

Reading the pages of the financial trade press over the past few months, you would have seen Selby has spent much of his time arguing strenuously against the idea.

Of course, it would be completely unfair of me to suggest there was any ulterior motive in Selby’s lobbying for such a proposal to be dumped by the Government – for example, the fact that providers might dislike the idea of people being asked to stop and think for a minute before taking their cash lump sums and funnelling it straight into investment schemes provided by companies like, ahem, AJ Bell.

No, God forbid. This was all about the impracticality of such a proposal from “unelected” politicians and other assorted toffs and miscreants in the Lords.

In his December column, Selby pointed to the potential for “outrage” from hordes of angry savers forced to cool their heels for a few weeks before being able to access their cash.

This image of crowds of enraged customers seems at odds with the experience of those who, like myself, have recently applied for mortgages or increases in their existing home loans.

As we know, new rules mean lenders demand a mass of additional, seemingly intrusive, information from prospective borrowers before deciding whether to dole out money to them.

And then there is the long wait. In my case, an increase in an existing mortgage from 8 per cent to 14 per cent loan-to-value, from a lender that also happened to be my bank and therefore already had access to all my financial information, took more than two months to complete.

My experience was not atypical. Yet there is no evidence that a near-totality of would-be mortgage borrowers are behaving in anything other than an entirely phlegmatic, if occasionally exasperated, manner at having to wait a few weeks longer before they can access their loans.

The idea, therefore, that savers who have been calmly sticking money into their pension pots for decades would suddenly turn into screaming banner-waving protestors because they had been booked a guidance appointment a month down the line, seems far-fetched – if not completely absurd.

As the redoubtable pensions campaigner Ros Altmann pointed out last week, we all know Pension Wise has performed excellently where it has been used. It has prevented people from falling prey to misselling and other scams.

What is more, consumers who access their pots early without taking advice typically follow the “path of least resistance”, accepting drawdown from their current provider without shopping around.

Pension Wise is a service that genuinely works for consumers – unlike other regulatory structures I can think of. MPs should ignore their whips and reinstate this amendment into the final bill. Their constituents deserve no less.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Nic, I’m sorry but I completely disagree with you on this one. Whilst I completely agree that the Pension Wise service does an invaluable, high -quality job, and that the majority those about to retire would be well-served by such a consultation, I can’t agree with the idea of compulsion. Pension freedoms were a step towards allowing people to have choice and control over how to spend their pension savings. That does, of course, come with some responsibility and there will be a many people that need help. So, it is perfectly correct to offer everyone the chance of a timely, high-quality consultation but, in my view, it would be totally wrong to impose it upon those that either don’t want or, don’t need it. To do so would be to re-introduce the rather arrogant implication that consumers simply can’t be trusted to spend their own money; a stance that is completely at odds with the pension freedoms themselves.

  2. Nic You are so wrong, Far to many have lost their money by “Un-Regulated Individuals” advising those who know no better to invest in unregulated investments, thus the Product Providers hide behind its not their job!! and the client has no idea they have lost the protection of the FCA/FOS/FSCS. this really is unacceptable, I do not mind funding the FSCS for debunked Regulated Advice, but really do you expect me to fund for unadvised irresponsible investment advice just because they lost out!!!

  3. The headline is almost correct, but should read:

    Auto-enrolled pension guidance is for those with no brains.

    If you get divorced you should used a solicitor. If you require accountancy services you need a chartered accountant, if you have a medical problem you see a doctor and if you need any kind of financial advice you need a well qualified and experienced IFA.

  4. This just boils down to whether you believe people should be forced to get advice/guidance or be left to decide for themselves.

    No more, no less.

  5. Hi Nic,

    Thought it was worth responding directly just to address a couple of points. The main issue is not the idea of auto-guidance, but rather the point at which the Lords’ amendment proposed it happens (i.e. when someone comes to transfer or access their pension flexibly).

    No research has been done as to whether or not this would be effective but, based on conversations I’ve had with people who actually deal with savers who want to access their savings, this would be the precisely the wrong time. As my original article says, at this point the majority have decided what they want to do and so the creation of a delay would cause, at the very least, frustration.

    You compare this to new rules which require borrowers to jump through various hoops to get a mortgage. But a mortgage is a loan from a bank, whereas a pension (from age 55) is entirely your own money. A better example would be someone trying to withdraw money from a cash point using their debit card and being told they have to book an appointment in three months’ time before they can get the cash. Now that WOULD make people very angry.

    Aside from this central problem, the amendment published by the Lords gave no indication on how auto-guidance could work on a practical level. It still isn’t clear to me what ‘guidance’ is in this context, let alone how appointments would be booked. My colleague Gareth James went into more detail on these points in a recent MM article here:

    https://www.moneymarketing.co.uk/aj-bell-right-way-improve-take-guidance/

    If we get away from the auto-guidance label, it seems to me everyone’s aim is to boost take-up of guidance and advice. Your suggestion AJ Bell has a vested interest in people not doing so is fundamentally flawed. In fact the majority of customers who use AJB are advised, and all customers who save with us – whether advised or non-advised – do so on an active basis. So if people are better informed and shop around, AJB is likely to benefit through transfers in from companies with traditionally less engaged customers.

    But surely it would be sensible to spend a bit of time testing ways to boost the number of people taking guidance and advice first, before making it law? This seems to me the right way round to do policy. If we are totally wrong and introducing auto-guidance at the point someone chooses to access their pension is proven to work, I will be its biggest supporter.

    Best

    Tom

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