Pensions minister Baroness Ros Altmann has launched a scathing attack on providers’ behaviour post pension freedoms, accusing them of being to blame for the low take-up of Pension Wise.
It is six months since the Conservatives secured a majority against the odds and Altmann took up the mantle of pensions minister.
Since then, data has begun to emerge about how savers are dealing with the freedom and choice reforms. The Government’s guidance service has had an underwhelming launch and politicians have been criticised for overpromising on the new state pension.
In an outspoken interview with Money Marketing, Altmann gives her view on why pensioners will not run out of cash, and accuses providers of diverting customers to in-house services.
Laying the blame
Launched alongside the pension reforms, Pension Wise was meant to be the brake that stopped consumers making rash decisions with their newfound freedom.
But seven months on, low take-up of the free 45-minute appointments and the controversial redeployment of staff, as revealed by Money Marketing over recent weeks, has dented the guidance service.
Only around one in 10 people who have accessed their pots since April took up the offer of an appointment.
Altmann admits take-up has been muted, but she says providers are to blame for not living up to the spirit of the rules on signposting to guidance.
She says: “Providers need to step up to the plate and do better. I’ve seen wake-up letters, including from companies that I previously considered to be very good ones, and I’ve struggled to find the Pension Wise name and phone number.
“In one case I saw a three-page letter that says ‘this is the value of your pension fund, now you need to decide what to do’. It says ‘giving this letter does not constitute financial advice but you can call our helpline to talk to somebody’.
“The implication is clearly the letter isn’t financial advice but if you call up the provider’s helpline it is – it’s the way it’s phrased. Once you’ve read through the letter you’ve had the provider’s number six times. The Pension Wise number is at the end but you already think by phoning the people at the nice company you’ve had your advice, so why would you go somewhere else?
“I’m concerned the providers are driving too many people to their own in-house services.”
Last month, Money Marketing revealed a Pension Wise guider was sacked by Citizens Advice following a row over staff being used for non-pensions work.
Advisers reacted angrily to the revelation Pension Wise funding was being used on other activity. The service is funded by a £39.1m levy, with advisers set to contribute £4.7m in 2015/16. MPs have also called for information on other areas, such as mortgages, to be included in guidance sessions.
But Altmann believes the service should be restricted to pensions.
“I’m really pleased we’ve reduced the age down to 50. It’s not ideal if the first time people think about it is 55. But I only want Pension Wise to expand within pensions.”
She adds: “It’s in advisers’ interests to boost the take-up of Pension Wise, it’s an ideal opportunity to help people understand why they might want to seek advice.
“If we didn’t have Pension Wise, then advisers would be much worse off. Everyone would just go to their provider and we know what providers are like.”
No ‘nanny state’
Altmann bats away growing concern that pension freedoms are leaving savers dangerously exposed.
Last week, a report from the Social Market Foundation called for an “early warning system” so the Government could intervene if pensioners begin running out of cash.
The report shows 40 per cent of Australians, who have never had a developed annuities market, consume their entire pension pot by the age of 75. The Australian government is currently debating introducing a form of compulsory annuitisation.
But Altmann says the lessons learned in the Australian market do not apply to the UK.
“I certainly don’t think the evidence so far suggests we need to worry about people running out of money. I’m talking with the industry and they are saying their customers are being pretty responsible overall.
“We saw in the first few months there was this rush for people to cash out mainly small pots. Many of those people had other pensions, and they’ve been planning to do that for the last year.
“I’ve met with people from Australia who have been involved with the pension system for quite some time. Their system is very different from ours. Their state pension is means-tested and a lot of people, because of compulsory pension savings, use their pension savings to pay off their mortgage when they retire.”
She adds: “It’s not valid to read across to what’s happening over there and say that means that people will do the same here. Indeed, it’s quite surprising that only 40 per cent in that environment have used all the money.”
The Government has also come under pressure for not producing detailed enough information on how savers are using their pensions since April.
She says: “It’s very difficult to know all the information at this stage, but we will get it through in the first few years – so we’ll know what people’s pension wealth is and what they are cashing in.
“But, as you’d hope, British people are being quite sensible on the whole. There will always be people who blow the lot in one go, but as long as that’s the minority that’s the whole purpose of the reforms. It shouldn’t be up to Government to tell you what to do with your money.”
One of the most striking trends since April has been the rise of non-advised drawdown. Standard Life has previously told Money Marketing non-advised drawdown was its “fastest-selling solution ever”.
Before she took office, Altmann campaigned for years to boost the number of customers who shopped around for the best value annuity, rather than rolling over with their existing provider.
Last week, the FCA warned it might have to intervene if it found evidence consumers are struggling to compare drawdown and simply defaulting to their provider’s product.
But Altmann does not think history is repeating itself.
She says: “Where I was so exercised before was if you bought the wrong type of annuity you were stuck with it for life. If you buy the wrong drawdown product you can move it – it’s not the same. There was a specific issue about annuities and the fact Government was forcing most people to buy without proper risk warnings and explanations.
“With a drawdown product your money is still in pensions and if you’ve made a mistake you can change it.
“With the old system, unless you had a very small or large pot, you were forced to buy a one-off deal with no explanation for you at all. It’s right we got rid of that.”
Almost as soon as Altmann took office she came under pressure to address widespread misunderstanding about the new state pension.
The pensions industry had always known millions would not receive the full amount – expected to be around £150 a week – when the system goes live next April.
But savers have instead been on the receiving end of the coalition government’s marketing campaign promising a flat amount, without realising they are likely to receive less.
According to a Freedom of Information request submitted by Hargreaves Lansdown earlier this year, only 45 per cent will get the full amount in the first five years following the changes.
So does Altmann hold her predecessor Steve Webb responsible?
She says: “We’ve had to correct some of the misinformation we’ve got now. It’s easier to explain something right in the first place than to correct something that hasn’t been explained right.”
A campaign run by women born in the 1950s and affected by transitional arrangements has also been gathering pace in recent weeks.
Altmann says: “There has been so much misinformation, people are running around saying it’s ‘so complicated; we were told it would be simple, told it would be flat rate and it’s been missold’.
“Actually it will be simple, and it will be flat rate – the complexity is about the past system that we need to calculate and crystallise into one figure from April 2016.
“From the end of 2016, because it will take a few months to have everyone’s National Insurance records, everyone will know their starting amount and from then on they will be building up a flat-rate amount each year regardless of their earnings, what type of NI contributions they make, or what type of NI credit they have.
“We’re also working on digital statements so through 2016 more people will be able to check their state pension online. We want everyone to be able to know what they are starting off with and give them a projection forward if they work five or 10 years longer.”
Alongside the delivery of the state pension, the extension of auto-enrolment to ever-smaller firms is a key responsibility for the minister.
In response to this new auto-enrolment phase, the Government launched a new advertising campaign based on ‘Workie’, the workplace pensions monster, that employers are warned not to ignore.
“With Workie, the idea was we had the really successful ‘I’m in’ campaign but the audience it was addressing was the workers, asking them to stay in, because their firms were doing auto enrolment anyway and probably already promoting pensions.
“We spent £8m a year for the last three years on that. But we needed to move on and recognise that we have to speak to employers now. Yes we want members to stay in, but I’m most exercised about helping those small employers who may not even realise they have duties, so they at least recognise that it’s the law and they have to comply.”
It is the twin priorities of the state pension and auto-enrolment as well as potential tax relief reform that have put other changes on the back-burner, Altmann explains.
In September, Money Marketing revealed the Department for Work and Pensions was to delay its plans for the pot-follows-member model of automatic pension transfers.
Steve Webb’s pet project of defined ambition – a framework for schemes that share risk more evenly between members and employers – has also now been shelved.
“We know tax relief reform is being looked at, but we don’t know exactly what will happen. Whatever changes are made it will be another thing for the industry to cope with. It’s another reason for saying let’s hold off on big, and even smaller, reforms that aren’t really important now.
“My impression is we won’t look at pot follows member or defined ambition before 2018. It’s sensible to wait until auto-enrolment is fully rolled out. We all know the contributions are low. When we reach the minimum we hope people will do more but my plea is for the industry to understand there’s only so much Government can do.
“We’re handing them these customers, they are there for the taking. Opt-out rates have been incredibly low – especially among the young – with around 90 per cent saying they want to stay in.
“The industry has a chance to engage them and then if they have done a good job people will stay in and save more. If we increased the minimum contribution, if people are not happy with their experience they’ll just opt out. The industry must now step up and take the chance to get their customers to do more with their pensions.”
Providers hit back at minister’s claims around Pension Wise
Providers are refuting claims by the pensions minister that they are directing customers away from Pension Wise.
Ros Altmann says she is concerned providers are “driving too many people to their own in house services”.
But Association of British Insurers director, long-term savings policy Dr Yvonne Braun says: “Providers remain committed to signposting customers to Pension Wise. The low initial take-up of the service reflects the fact that it needs much more promotion. It was not helped that it was launched in the run-up to the general election. Even though crucial details, such as how the guidance sessions would work and the telephone number had not been agreed six weeks prior to its launch, providers had already agreed a standardised communication for promoting the service. What is now important is Government and providers work together to ensure people make maximum use of the service.”
But a senior source at a major provider says: “There are a number of companies, crucially those that distribute through advisers, that have made it central to their strategy to retain customers and were quite blatant about it when Pension Wise was coming together. I was quite surprised at how upfront they were.”