Pensions guidance: Pension Wise

In Budget 2014, the Government announced that from April 2015, individuals aged 55 and over will be able to access their defined contribution (DC) pension savings as they wish, subject to their marginal rate of income tax. The changes to pension tax legislation necessary to implement this are in the Taxation of Pensions Act 2014.

The Government said it recognised that people would need help navigating the expanded range of options and therefore introduced a guidance service – Pension Wise - in the Pension Schemes Act 2015, (s47). The service is delivered by Citizens Advice (face to face) and the Pensions Advisory Service (TPAS) (by phone) and via its website.

Pension Wise is targeted at people aged 50 or older with DC savings. It aims to provide guidance for the purpose of helping people make decisions about what to do with flexible benefits. Providers are required to signpost savers towards Pension Wise (FCA, PS 14/17). In addition, as a ‘second line of defence’, they are required to give risk warnings to those wanting to access their savings (PS 15/4).

In its Retirement Outcomes Review, the FCA found that take-up of Pension Wise remained low (Interim Report, para 3.33). It focused on those consumers who do not take advice and its evidence showed that some are at risk of harm. It found that:

• there are weak competitive pressures and low levels of switching. Most consumers choose the 'path of least resistance', accepting drawdown from their current pension provider without shopping around
• one in three consumers who have gone into drawdown recently are unaware of where their money was invested
• some providers were ‘defaulting’ consumers into cash or cash-like assets, but holding cash is highly unlikely to be suited for someone planning to draw down their pot over a longer period.
• consumers might pay too much in charges. We found that charges for non-advised consumers vary considerably from 0.4% to 1.6% between providers, and are, on average, higher than in accumulation (where in some cases they are capped at 0.75%)
• drawdown charges can be complex, opaque and hard to compare
• so far, we have not seen significant product innovation for mass-market consumers.

In a December 2017 report, the Work and Pensions Committee expressed concern about low take-up of Pension Wise, saying that “far too many people are currently taking vital decisions in the dark, putting them at greater risk of suffering irrevocable financial detriment through scams or choices contrary to their interests.” It recommended that guidance should be the default, with individuals having to receive or expressly refuse it before being granted access to a pension pot. It proposed an amendment to this effect to legislation then before Parliament. In the event, the Government tabled its own amendments (now sections 18-20 of the Financial Guidance and Claims Act 2018). Providers will be required to refer scheme members seeking to access or transfer their pension pot to Pension Wise and – before proceeding with an application - to ensure that – with some exceptions - they have received guidance or explicitly opted out. The FCA is to consult on the details (Retirement Outcomes Review, June 2018, para 1.35).

The Act also made provision for Pension Wise to be brought together with the Money Advice Service and the Pensions Advisory Service in a new Single Financial Guidance Body, which is expected to be operational from January 2019. (HL Deb 24 July 2018 c1601). The debates on the legislation are discussed in Library briefing Paper CBP 8033.

On 4 September the Government announced that it expected to establish the body as a legal entity in October when the Chair and Chief Executive take up their roles. It will launch in January 2019 when it takes on its delivery functions of money and pension guidance, and debt advice (HCWS933 4 September 2018).

For more on the pension freedoms, see Library Briefing Paper CBP 6891 (August 2018). The Pensions dashboard - being developed to enable individuals to see all their lifetime pension savings in one place – is discussed in Library Briefing Paper CBP-8407 (September 2018).