Taking important financial decisions fills most people with anxiety and confusion. Many others find personal finance deathly dull. But as responsibility for securing our long-term wellbeing shifts steadily from the state and employers on to the shoulders of individuals, there will be no alternative in future but to face up to these subjects and decide for ourselves what we should do—with or without the help of a qualified expert.
With the early months of “Pension Freedom” now behind us and a review by regulators into the market for financial advice under way, Prospect convened a round-table discussion at the House of Commons on October 22 in association with the FTSE-100 wealth management company Old Mutual Wealth to explore how government can ensure people get the pensions advice they need. The meeting brought together members of the Work and Pensions Select Committee, the Shadow Minister for Work and Pensions, as well as experts from the organisations that deliver the Pension Wise financial guidance service, and the financial services industry.
Paul Feeney, CEO of Old Mutual Wealth, said his firm was now inundated with pension enquiries from people unsure about what to do with their savings. He argued strongly that the UK faced the twin challenges of a very low savings rate by international standards and a major shortage of professional financial advice. “There are, depending on which statistics you believe, somewhere between 22,000 and 25,000 financial advisers now in the UK,” he said. “To put that into perspective there are 330,000 lawyers and over 150,000 accountants. Is there a financial advice gap? You bet there is.”
The government’s Pension Wise initiative was intended to meet an expected upsurge in demand from people looking for help to make decisions—although Pension Wise offers unregulated general guidance rather than regulated financial advice, which is tailored to the individual’s circumstances and for which the adviser is personally liable.
One of the major talking points in the months since Pension Freedoms came into force is the gap between the number of people exercising their right to take cash from their pension pot and the number known to have made use of the Pension Wise service. Roughly speaking, one in 11 of the 220,000 people who have accessed some or all of their pension savings have had a telephone consultation with Pension Wise, provided by the Pensions Advisory Service (TPAS) or a 45-minute face-to-face Pension Wise consultation, provided through Citizen’s Advice. This could reflect both a lack of demand for guidance among those accessing their money and a general lack of awareness that they have the right to use this free service.
However, the discussion revealed that the limited information on take-up of Pension Wise that has so far emerged tells a rather misleading story about the level of demand for guidance. David Berenbaum of TPAS said that as well as calls to the organisation’s dedicated Pension Wise helpline, telephone traffic to TPAS’ main helpline had also risen sharply. “We have had a surge of inquiries to our business as usual line since George Osborne’s Budget of 2014,” he said. “For that first year we had a 30 per cent-40 per cent increase to our normal TPAS helplines, since April it’s been a 70 per cent-80 per cent increase.”
Teresa Fritz of the Money Advice Service agreed. “Calls to MAS on pensions have quadrupled since the Pension Freedoms. Very often people think MAS is Pension Wise. People get halfway through talking to one of the MAS money advisers, who are not trained to the same level as the Pension Wise advisers, when the penny drops and we have to stop the conversation.” It is therefore not safe to assume that the figures produced so far on use of the Pension Wise service give a complete picture of the level of demand among the public for financial guidance and advice.
However, even if the level of demand is higher than the Pension Wise figures might suggest, there was vigorous debate over how best this might be met. One common criticism is that it in seeking to professionalise financial advice, government and regulators had made it too expensive for most, with figures of £1000 or more quoted for a session with a qualified adviser. This may well be worthwhile for the well-off but most would not pay anything like that much—research by the Pensions & Lifetime Savings Association (PLSA), which represents pension schemes, suggested that only 3 per cent of people were prepared to pay more than £200 for a session of financial advice.
Some would be able to make their decisions on the basis of free guidance from Pension Wise, which would explain their options but stop short of telling them what to do. However, the suggestion that some sort of “default option” should be provided for those who would not or could not engage with guidance or advice drew a mixed response.
Richard Graham, a Conservative member of the Work and Pensions Select Committee argued that the whole point of Pension Freedom ran counter to the idea of default products. “There is a philosophical issue here: do we regard all savings, including pensions, as actually belonging to the individuals?” he asked. “The problem is that defaults effectively imply responsibility for the outcomes and government is not necessarily the best provider of investment solutions.”
Jackie Wells, Head of Policy and Research at the PLSA, said her organisation saw the need for “a mechanism where we can steer people without giving full advice to solutions that meet certain standards,” though she added: “We don’t think it’s a default exactly.” The question over what part these non-advised “back-stop” options might look like is one of the biggest unresolved issues for the future of the pension advice/guidance market.
Throughout the discussion it became clear that publicity would be crucial in making sure that people realised their options to access expert guidance and regulated advice, with former Shadow Pensions Minister Gregg McClymont—now Head of Retirement Savings at Aberdeen Asset Management—arguing that pension schemes were very well placed to deliver information and even advice. Others also argued that the current structure of Pension Wise—split between a government website that came in for heavy criticism, a telephone service provided by TPAS and a face-to-face service from Citizens Advice—was unwieldy and confusing. For Pension Wise to become more coherent and useful, it needed to be brought together into a single organisation, possibly along with others such as MAS, to make it easier for people to know who to approach.
The service should also take into account a person’s entire financial assets, including any property they owned, rather than just their pension pot, argued both Shadow Pensions Minister Nick Thomas-Symonds and Conservative MP Jeremy Quin.
Finally, Teresa Fritz argued that in spite of all the emphasis on free guidance, we should not give up on the possibility of fully-regulated financial advice becoming cheaper. Already, advice services priced at just £200 were available, she said. “I would like to see a recognition that the market can deliver lower-cost regulated financial advice within current boundaries. We shouldn’t take that really hard-won protection away from consumers—the market is beginning to deliver.”
This article is drawn from a parliamentary roundtable chaired by Prospect’s Andy Davis and supported by Old Mutual Wealth. The discussion marked the latest in Prospect’s activities on the future of pensions which included the launch of a report titled: we’re all pension managers now in July 2015.
You can read an article on Prospect’s event at this year’s Conservative party conference with Harriett Baldwin MP, Economic Secretary to the Treasury and Jeremy Quin MP from the Work and Pensions Select Committee by visiting ‘what makes good pensions advice?’
