The Institute and Faculty of Actuaries (IFoA) has given its support to a cross-party group of MPs calling on the UK government to do more to boost uptake of pensions guidance and advice.
In a report published yesterday, the Work and Pensions Committee recommends that the government commit to a trial of automatic Pension Wise guidance appointments, and set a target of at least 60% of people using the service.
At present, just 14% of defined contribution pension pots are accessed after the use of Pension Wise, which the MPs say risks pension freedoms, introduced in 2015, being seen as a failure.
The report urges the government to initiate two trials: one with an appointment when a person accesses their pension for the first time, and another at the age of 50, before they can access their savings.
It also calls for the Pensions Advice Allowance – which allows £500 to be withdrawn from a pension up to three times in different tax years for advice – to be overhauled, with the annual limit removed and advisers encouraged to signpost its use.
Reacting to the report's publication yesterday, IFoA pensions board chair, Leah Evans, said: “We support the view that a stronger nudge is beneficial for pension savers in the UK.
“Providing more Pension Wise advice sessions before retirement will help consumers to consider the pros and cons of drawdown and the opportunity to better understand which product will best meet their needs.
“In our Great Risk Transfer report, the IFoA recommended specific and ambitious targets to achieve an increase in take-up by individuals of Pension Wise appointments before accessing their pension.
“This announcement should help to generate more Pension Wise appointments and lead to better outcomes for pension savers.”
During its inquiry, the Work and Pensions Committee was told by the Financial Conduct Authority (FCA) that consumers describe pensions as a “minefield”, with even those who felt financially confident in other aspects of their lives struggling to understand how pensions work.
In their report, the MPs say that pensions dashboards have the potential to be “the most influential policy in helping people take good decisions” when first accessing their pension pots.
However, these must be properly resourced to get implementation right and ensure there is up-to-date data for every pension scheme, with no transactions made through dashboards until they are well established.
The report also recommends that the FCA look to increase the number of people choosing a mixture of retirement products, and that the government continue to support the development of collective defined contribution (CDC) schemes.
“CDC schemes are a potential innovation for pension savers and this report is a further welcome step in developing practical, innovative schemes for willing employers in the UK,” Evans continued.
“The committee’s inquiry continues to shine a light on the challenges that exist for the modern pension saver and to offer solutions. We look forward to continuing this debate and the consideration of issues like the viability of multi-employer CDC schemes.”
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Author: Chris Seekings