For those of us who have read – and reported on – an endless stream of negative reviews from all sorts of official bodies about some aspects of the financial services sector over many years, it comes as a bit of a shock when someone praises a service in fulsome terms.
Yet that is precisely what happened last year when the Department for Work and Pensions produced a glowing review about Pension Wise, a body which provides guidance to consumers preparing to make retirement savings decisions.
The Pension Wise service evaluation, published in October 2017, was a report carried out by pollsters Ipsos Mori on behalf of the DWP. It consisted of surveys carried out with customers who attended interviews with Pension Wise staff between February 2016 and January 2017, as well as eligible defined contribution pension holders who used the Pension Wise website.
If I didn’t have complete faith in the independent status of Ipsos Mori as an organisation, I might be inclined to think it had been leant on by political forces; the approval ratings for Pension Wise are so massive they rival those of most dictators.
According to the report a staggering 94 per cent of customers who attended appointments were “satisfied” with Pension Wise. Almost eight out of 10 were “very satisfied”. Ninety-four per cent were satisfied that their options were clearly set out to them, and nine out of 10 felt they were helped to make an informed choice about their next steps.
The ratings extended to all other aspects of the treatment received from Pension Wise; nine out of 10 were satisfied with the convenience in terms of making an appointment, the waiting times, the length of the appointment itself, the knowledge of the Pension Wise guider, the clarity of discussions and the extent to which discussions took on board personal circumstances.
The overwhelming majority of customers – an incredible 97 per cent – either already had, or said they were likely to, recommend Pension Wise to others.
I mention all of these figures to underline another fact: nine out of 10 consumers who access their pensions benefits at retirement – or are preparing to unlock their retirement assets as part of the government’s bonfire of pensions regulations in 2015 – are failing to make use of Pension Wise’s services.
There is no doubt this mismatch is a recipe for terrible pensions mistakes being made, the impact of which will only become apparent 10 or 20 years down the line.
Earlier this month, the Financial Guidance and Claims Act received its Royal Assent, minus the requirement pushed for in an amendment by the House of Lords, for people who want to access their pension benefits to be automatically enrolled into receiving guidance from Pension Wise on the options available to them. The House of Lords amendment also received support from MPs on the work and pensions committee, but to no avail, unfortunately, as government whips succeeded in keeping their members on the straight and narrow and prevented the Lords’ amendment making it into the statute book.
What they told backbenchers considering a small rebellion on this issue was that they were passing responsibility to the FCA to decide on the enforced default option as part of its final Retirement Outcomes Review, which is due to come out in the next few months.
Treasury ministers claim the Act in its current form will “lay the foundations for an effective final nudge” to the FCA on the issue. But it doesn’t look as if the FCA is listening very hard.
According to one report, the FCA’s director of strategy and competition Chris Woolard told MPs on the Treasury select committee last week he did not think it was within the regulator’s powers to try to change consumer behaviour for the better.
If correct this statement is bizarre on several levels, not least because the regulator has spent tens of millions of pounds over the years trying to educate consumers to make more knowledgeable financial decisions.
Ironically, the FCA’s own Financial Lives Survey last month raised serious concerns about the level of understanding of those planning to access pension money.
Of those who said they had a clear plan to access their money, only 2 per cent said they didn’t understand their options to some extent. Yet in the same survey, more than half of people got the answers to a range of questions about their options completely wrong.
The FCA’s Financial Lives Survey, by the way, identifies more than half of those it polled as being “potentially vulnerable”, with a significantly lower understanding of the options than the average.
Evidence clearly suggests many consumers who do access their pensions cash are doing so without actually asking some of the most basic questions about the consequences of doing so. For example, how long they can expect to live in retirement and how much income they might need.
Default guidance is not just an optional extra but a clear necessity to ensure that decisions about people’s incomes in retirement are reached with all the information needed to make wise choices.
It is time the FCA steps up to the plate.
Nic Cicutti can be contacted at firstname.lastname@example.org