In the early days of pension freedoms the influence of providers, rather the Government’s flagship Pension Wise service, is being brought to bear on savers.
The latest Government figures show 1,800 people had booked appointments with Pension Wise, either over the phone with The Pensions Advisory Service or face-to-face with Citizens Advice, by the time the freedoms came into force last week.
The guidance service has capacity for up to 10,000 appointments a week in April and over 400,000 appointments a year. Savers are instead turning to providers for pensions guidance, with the largest firms fielding 3,000 calls a day each.
TUC pensions policy officer Tim Sharp says: “First Pension Wise was downgraded from advice to guidance and the fact it’s barely been promoted has undermined the potential effectiveness of the service.
“The real worry is savers are left to fend for themselves in what is a very complicated area and where poor decision-making could have repercussions for decades to come in their retirement.”
“Purdah” rules have limited a marketing campaign promoting awareness of the new service, meaning the Government has had to pull television ads in the same month as the revolutionary reforms are rolled out.
So what are the first wave of post-freedom savers asking their providers for? How are providers interpreting their new “second line of defence” duties? And should the next Government pour resources into promoting Pension Wise?
Money Marketing approached a total of 12 providers asking for a full breakdown of the pension freedoms enquiries they are seeing. Of the total, five providers failed to come back with comprehensive answers to the questions asked.
Royal London says it has answered an average of 3,000 “at retirement” calls a day since 6 April as has Scottish Widows, which hired 400 extra staff to deal with demand. Standard Life received over 5,000 by the end of last week, which it said was an “unprecedented level of customer contact”.
Purdah rules mean the marketing of Pension Wise, which providers are required to direct customers to in the first instance, has been severely restricted. Typically, government campaigns are blocked from being advertised in the weeks preceding a general election, but the Cabinet Office deemed an exception should be made for Pension Wise.
But despite the special consideration, the service is only allowed to be promoted through digital and print advertising for April and much of May.
Barnett Waddingham senior consultant Malcolm McLean says: “Given the importance of the topic I don’t see why a greater exemption shouldn’t have been made given the revolutionary nature of the changes coming in. We all know people without proper guidance or advice are going to get this wrong.”
Lucian Camp Consulting founder Lucian Camp says: “The Government is going to have to find ways of targeting the Pension Wise message as best it can on an ongoing basis. It can’t be a ‘one and done’ blitz campaign.
“If it wasn’t for purdah there would be a good case for a big initial campaign because there’s pent-up demand in the market.”
But Cazalet Consulting chief executive Ned Cazalet disagrees. He says: “I’m not sure purdah has anything to do with it. Are people going to respond to anodyne ads for Pension Wise? I suspect generic campaigns will not do the trick. Most people will not see the benefit of contacting a third party that has never had anything to do with their pension so far.
“If I have a problem with Sky, I wouldn’t call an independent television service. It’s not a surprise at all to find that people’s instincts now – and perhaps going forward – is to go to their provider.
“No matter how wonderful TPAS or Citizens Advice staff will be, if they are not giving advice members of the public will see the whole thing as a joke – it’s like a Monty Python sketch telling people they can have guidance, not advice, and how guidance is not the same as information.”
A week into the new freedoms, customer behaviour varies widely. At one end of the spectrum, Standard Life says the majority of customers who have used its website to access their pots have encashed all or part of their savings.
Most Royal London pension savers who have acted so far have also taken cash, with the most popular reasons being paying off debts such as mortgages, improving their home, and investing in other assets such as Isas or property.
Both firms report some customers are indicating they will be using funds for luxury items such as cars, caravans and speedboats.
Other providers with wealthier demographics have found customers are more interested in entering flexi-access drawdown arrangements, which have no limits on the amount that can be withdrawn in one transaction.
LV= says the number of enquires received about drawdown have doubled compared to the same period last year, while around 42 per cent of phone calls to Hargreaves Lansdown on the first working day of the freedoms were about drawdown. Calls from Fidelity’s direct customers reveal they are “generally focussed on long-term retirement planning with significant interest in flexi-access drawdown”.
Sipp providers say their customers’ behaviour is the “total opposite experience” of the mass market life companies.
Dentons director of technical services Martin Tilley says just five people out of its 6,500-strong client bank have signalled their interest in withdrawing their entire pension pot. He says the changes to the pension death tax have led to older clients slowing down the rate they withdraw from their pensions, rather than aiming to empty their pots before they die, as was the case under the old rules.
Second line of defence confusion
Average call times in the first week of pension freedoms also differ widely between providers. Figures compiled by Money Marketing reveal the longest average call reported was 30 minutes at Standard Life, while LV=’s four minutes was by far the shortest. Fidelity and Axa Wealth customers spent between an average of 10 and 15 minutes on calls.
An Aegon spokeswoman says the average call handling time on 7 April, the first working day of the freedoms, was seven minutes. But she says the figures include calls from advisers and customers, and warns industry statistics could be misleading depending on how firms are recording pension freedoms enquiries.
But nevertheless, the huge variation in call times suggests the industry is struggling to apply the FCA’s new second line of defence rules consistently.
B&CE, the firm behind auto-enrolment scheme The People’s Pension, is not offering customers a telephone conversation, instead they will be given the risk warnings online and in paper documents.
Chief operating officer Jamie Fiveash says the scheme, which runs the UK’s biggest stakeholder plan, has around 300,000 people over the age of 55, many of whom have smaller pensions pots and simply want to take cash.
The scheme has called on the FCA to introduce a £10,000 minimum below which providers are exempted from giving risk warnings.
Fiveash says: “There is a danger with the second line of defence rules that providers give too many broad messages. It’s more important to give sensible messages relating to customers’ circumstances, and only Pension Wise has really got the time to do that properly.”
Penguin Wealth certified financial planner Craig Palfrey
We are not surprised the Pension Wise floodgates have failed to open. People will need help for sure, but in most cases they will need advice, not guidance. Pension Wis is best for those people with very straightforward requirements. Pension companies need to support the idea that advice is always the better option.
Expert view: The first week of pension freedom
Since the introduction of pension freedoms last week the volume of calls continues to be at unprecedented levels. We estimate we are receiving around 3,000 calls per day as a direct result of the changes. This is not just customers calling direct; we are also receiving a high proportion of calls from advisers keen to change their clients’ financial plans.
The most common requests continue to be that customers want full or partial lump sums from their pension. An initial “snapshot” assessment of the calls we have receive shows a mixed picture: 35 per cent of people are using funds to pay off debts, while only 6 per cent have mentioned using the money to go on holiday.
Of course we have had the inevitable interesting requests, from someone wanting to purchase an Aston Martin and another customer wanting to buy a racehorse, one of the more imaginative (and risky) ways of funding retirement.
The true shape of the market for retirement income will emerge gradually over the next year or so. Advisers will have a key role to play in shaping that market once the initial “dash for cash” has died down.
Gareth Evans is head of corporate affairs at Royal London