Nic Cicutti: Default guidance is the only solution to pensions ignorance

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



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. “The FCA’s Financial Lives Survey, by the way, identifies that more than half of those it polled as being ‘potentially vulnerable’, with a significantly lower understanding of the options than average.”

    Is that mathematically possible???

    The article is fair comment but rather political in nature because it’s fundamentally about where you draw the line in terms of individual responsibility. The political decision was made to give people a personal choice and with that comes personal responsibility. There is plenty of information and advice (at a price, obviously) out there for people who want it. You can lead a horse to water, etc. Everyone has an opinion but be clear if it’s politically motivated.

    • I think this is a less than educated (sic) use of the word average – its intended to reflect majority of the population its lazy English a speciality of the FCA.

      In the end some people cannot afford to save and we need to recognise that in the state pension design and deployment WASPI has made the more intelligent realise that means testing is the way forward

  2. I agree but default investment choice is not a smart move it simply allows the EB consultants to provide a solution that is almost guaranteed to be inadequate the market needs a better way forward in the mass market sector – I’m working on it with not a default in sight; FCA need to clamp down on this trend re defaults!

  3. Nic

    I always thought you were a realist.

    A solution for ignorance. Gosh you are a dreamer! Perhaps you could get a position with the Department for Education and Skills – they seem to be constantly trying to combat ignorance

  4. Julian Stevens 29th May 2018 at 6:50 pm

    The best way (IMHO) for the FCA to step up to the plate would be a root and branch review and overhaul of providers’ pre-retirement packs, starting out with the addition of a laminated, brightly coloured single sheet summarising the pros and cons of each option, including taking vs. not taking IFA.

  5. Duncan Gafney 31st May 2018 at 9:30 am

    Actually Nic, basic financial education is actually the key. Without that basic knowledge people are incapable of making reasonable decisions.

    Even with that, vast numbers of people will still make silly decisions, simply because people have a very strong tendency to over inflate their own knowledge and make decisions for emotional reasons, rather than rational reasons.

    The simple fact, is that people have to be allowed and free to make their own mistakes without constantly having a “safety net” there to catch them when they make silly decisions.

    We all do this when it comes to the law, yet apparently we are all unable to do this when it comes to money.

    If you stop there being consequences to stupid decisions, then people simply don’t learn..

    If however you educate them and then take the safety net away (at least for their own silly decisions), they will learn..

  6. If the fact that 9 out of 10 people aren’t using Pension Wise prior to accessing their pension is seen as a risk, and Lords and MPs want it to be obligatory, where do they expect the money to come from to make this a reality?

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