Pensions minister Steve Webb has warned providers will struggle to meet customer demand if too many people try to access their pensions when the Budget reforms go live on 6 April.
At the Association of British Insurers’ retirement conference last month, Webb said savers should “stay in bed” on 6 April rather than rush to contact providers about using their pension pots.
Speaking to Money Marketing, the pensions minister admits savers could be frustrated in the months ahead by longer phone waiting times and slower processing.
He says: “There’s clearly a capacity issue. I don’t just mean with the Government but with the providers. We want people to get a good, positive experience when they exercise their Budget freedoms. We know we’ve got this surge and the unusual situation of people champing at the bit and piling in behind 6 April means it just won’t be like normal.”
Webb adds: “If you’re doing it because you’re rushing, you’re more at risk. I know providers that have taken on hundreds of extra people to deal with the volume of calls they’re expecting, but inevitably where the Government finds it slightly easier to have temporary capacity, for the providers it’s a cost to have people in the first months and then get rid of them, so there’s a temptation to slightly underdo it at the peak and ration people by taking longer with calls or taking a bit longer to process.”
Product innovation has been set back by providers racing to comply with the raft of regulatory changes, he adds. “We know providers have been focused on getting their technology right and taking on staff, coping with capacity in April, and inevitably production innovation has been secondary to that.
“So although there’s the odd story and the odd products, over the coming months there will be new options for people and more competitive products as the market develops.”
Annuities sold by ceding providers continue to outnumber annuities bought on the open market. But Webb expects the launch of the Government-backed guidance service Pension Wise will boost the number of people shopping around for the best deals.
He says: “The people at the bottom will take cash, the people at the top will take financial advice. It’s the people in the middle, compared to now where they just default to their provider, they will be sent off to someone who tells you there is a range of products and a range of providers.
“If they still find it all too overwhelming and just ring the people they know who have their bank details and can pay them tomorrow, there’s a limit to how far we can stop that. But having this guidance going to thousands and thousands of people, it will be interesting to see if we can do enough to overcome inertia.”
However, it is not just the pension freedoms Webb thinks his tenure as pensions minister will be remembered for.
He says the framework for greater risk-sharing between employees and employers will be “one of the lasting legacies” of the period.
He also hits back at critics of “defined ambition” who say employers are not interested. “If you’re a firm with individual defined contribution and you might at some point move towards collective DC you’re going to wait to see the colour of our money first, how it will be regulated, how much it could cost and so on.
“This is the paradox. We do the Budget and do it all in a matter of months and everyone says this is outrageously short-termist and rushed. But we do defined ambition properly – consult, do primary legislation, consult on secondary legislation so people know where we’re going and have time to think, time to plan – and everyone says ‘well nobody’s interested’.
“But it’s not for today, it’s for tomorrow. This will have been one of the last legacies of this period because pendulums always swing back. It’s absolutely clear to me you move to an extreme like individual DC and all the volatility and there will be employers who want to offer more certainty to their workforce and want people to be able to afford to retire. We already know of big multinationals in Europe looking at CDC for the over-40s, for example. “It’s absolutely live, this isn’t just Steve Webb’s pipedream.”
Plans for the development of a pensions “dashboard” – where people can see all their savings in one place – should lead to product launches within two years, he predicts.
He says: “The Government is digitising National Insurance records, so later this year you’ll be able see your records online. Pot-follows-member rules means there will be registries, and stranded pension pots will be reported. We are also linked to about two million company pensions.
“You can say that could be the embryo of something more comprehensive about where your pensions are.”