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Richard Parkin: Why are savers not seeking Pension Wise guidance?

Just over six months into the freedom and choice regime, mutterings about the success or otherwise of Pension Wise are getting louder. Evidence to the Work and Pensions select committee has suggested take-up of the Government’s independent guidance service could be as low as one in 10 of those accessing their pension pots.

Pensions minister Ros Altmann recently suggested low take-up was due to providers not signposting the service adequately. But might there be other reasons?

After all, 90 per cent of those using Pension Wise are satisfied with the experience and, while some providers might be able to do more, most promote the guidance service extensively in their communications to customers. Our experience of customers wishing to access their pension pots suggests human nature is presenting a bigger barrier to speaking to Pension Wise.

Many of the customers who come to us wanting to exercise pension freedom are members of company plans wanting access to cash. Around half of them are five or more years from their stated retirement date.

A third have pension pots of less than £10,000. What many of them do have, though, is simplicity of need and a certainty of intent. Both of these will tend to prevent people seeking expert help and guidance and must, at least partly, explain why Pension Wise take-up has been so low.

By simplicity of need, I mean that customers see accessing cash from their pensions as a relatively simple request, particularly if the amount is small or they are only taking part of their savings. If I want to get my tax-free cash five years early so I can buy a kitchen why should I not do that? Why do I need to have a retirement planning conversation for something so straightforward? Allied to this is the certainty of intent. I know this is what I want to do, I am not up for discussing options and, in many cases, I certainly do not want to be told I should not do it.

Where do customers get these notions? Well, a large part of it has to be around the political language used. Customers have been told it is their money to do with what they want; that they should be trusted with their money and that they can use their pensions as bank accounts. Against this backdrop, is it surprising customers do not want to engage in a guidance conversation?

Much of the messaging from the Government has been about what people can do. There has not been much about what people should do. Even the Pension Wise TV advert stops short of telling people they should use the service before accessing their pension funds.

Pension freedom is great. But everyone has to be more outspoken in promoting the need for people to get expert help – be that from Pension Wise, advisers or providers – if we are to make it an even greater success.

Richard Parkin is head of retirement at Fidelity International

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Good article and very true.

    I also believe this is highlighting another factor, that after so many years for consumers only having poor advice outcomes reported, they are fearful of engaging.

    I have asked on many occasions, what percentage of total products implemented actually make a complaint and what percentage overall is up held, we get percentages of complaints made, the worst offenders, but never the percentage against total business written. I would suggest this figure is frequently hidden as it would imply that the regulators are being paid vast sums for what actually is a very small, but frequently highlighted by them as a problem.

    Human nature nearly always moves towards what it frequently is told to be true. All the consumer ever seems to see is this failed, bad advice this, that the other and this company has failed, committed a fraud or scam. Has anyone ever seen a positive news story? Or even comment from the regulator or Government?

    The Government and regulators then sits back and cannot understand why consumers have not rushed out to Pension Wise! I would strongly suggest you need to rethink your strategy.

  2. MMBernie MMHamilton 1st December 2015 at 4:20 pm

    As a provider (who I won’t name) we have been encouraging people to take advice or shop around for some years now, but the majority are just unwilling to do so. Nevertheless a number of parties were happy to apportion blame to us when the customer failed to do so. Then, when Pension Wise was piloted with LV, it was found that take-up was extremely low. Given that LV was a pilot, and the company (having no shareholders) has much lower potential for conflicts of interest with customers, how is the low take-up in the pilot to be blamed on the provider? No doubt there are still providers out there with less than ideal practices, but Ros cannot use that to explain the low take-up when the same issue was experienced in the pilot with the provider that was working with Pension Wise to test the process.

  3. Personally, I DON’T consider these new unfettered access provisions to be good and I’ve said so right from the start, primarily because I think they’ve encouraged a lot of people to act in haste only to repent later at leisure. Later on, they’ll be looking around for somebody else to blame and to complain against.

    For most people, the best course of action is NOT to cash in their pension fund/s early, not even partially. Rather, they should be ADDING to them because they’re quite probably unlikely to be adequate to provide a decent level of retirement income even if they maintain their current level of contributions right through to their originally planned retiring age.

    Freedom from the annuity rates trap is all well and good ~ but what’s the alternative? People seem to assume that Income DrawDown is some sure-fire recipe for extracting a quart from a pint pot whereas, in reality, drawing down from a pension fund at a rate higher than the equivalent annuity poses a high risk of early fund burn-out.

    So (generally speaking) it’s only the issue of death benefits that really swings the argument in favour of DrawDown as an alternative to an annuity. Add to that the potential uplifted annuity rates commonly available to reflect various health issues, plus the (admittedly few) very good With Profits annuities out there, and it’s not hard to see why annuities should still form the bedrock of most retirement income planning. That and putting more money in before retirement instead of rushing to take it out just because the government has said you can.

  4. AS the article says – for small pots it isn’t worth it. If larger pots are involved the answer to the headline question is: Stupidity.

  5. Incidentally today I received my pension statement from Fidelity – No mention of Pension wise whatsoever. It does seem that there is more that could be done by providers.

  6. Part of the problem is of the concept peddled by HMG That a pension fund is like a bank account.

    However, given that the growth on a fund will be less than interest rates on many cards, cashing a plan for debt consolidation may actually make sense.

    IMO, the idea that the low take off is down to provider is a farce.

    Staff were clearly told to push Pensionwise by the firm I worked with at the time.

  7. ” If I want to get my tax-free cash five years early so I can buy a kitchen why should I not do that? Why do I need to have a retirement planning conversation for something so straightforward?”

    Perhaps because it is possible that the DWP might say that you should have used the money for general needs and wouldn’t increase your benefit because your capital had reduced? It’s called deprivation; if you have a resource which is taken into account for your means-tested benefits assessment and spending it increases your benefits, then you might be very wise to have a conversation.

    The DWP aren’t, generally, unreasonable but it may not be straightforward.

  8. I have no problem at all with the Pension Freedoms, it’s your money. I would recommend anybody to take up Pension Wise guidance, in fact for pots above the trivial amount I would make it compulsory or at least require a signed waiver if people don’t want to take it. After that if they want to access their money (THEIR MONEY), let them. Just remember whose money it is!

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