Default impartial guidance
In its report on pension scams the Committee argued that a default impartial guidance appointment immediately prior to accessing a pension pot would result in better consumer outcomes, and the Government is moving towards that position in the Financial Claims and Guidance Bill, currently awaiting report stage in the Commons.
But greater engagement earlier in life is necessary to ensure people have pension pots worth seeking guidance on. The Committee calls for a two-pronged package to create "informed and confident savers … more likely to shop around and take sound financial decisions about their retirement … equipped to exert that competitive pressure".
The Committee proposes a new, simple, standard drawdown pension:
- The introduction of a new default decumulation pathway to support the disengaged - and protect their savings - including through NEST
- A new system of transparent and accessible information
A default pathway
- NEST, the Government-backed DC pension scheme established to support Automatic Enrolment has over 5 million savers. Currently, NEST is not able to offer those members decumulation products. Government should allow NEST to provide de-cumulation products from April 2019, including a new default drawdown pathway. In keeping with the spirit of pension freedoms, savers would remain entitled to move their money wherever they wished
- Every pension provider offering drawdown must, by April 2019, offer a default de-cumulation pathway suitable for their core customer group, subject to oversight by existing Independent Governance Committees and subject to the same 0.75% charge cap already in place for accumulation in automatic enrolment.
A system of default decumulation pathways will protect consumers who do not engage with their pension saving - but the "real prize" is a properly functioning pension freedom market which offers suitable and good value pensions for more people. This can be driven by a virtuous cycle of better-informed customers switching providers and demanding cost-effective products.
Single, public, mandatory pension dashboard
The Committee says the case has been made for a single, publicly hosted pensions dashboard: covering state, defined contribution and defined benefit pensions, funded by the industry levy, and in place by April 2019. The multiple dashboards currently planned, hosted by self-interested providers, would only "add complexity to a problem crying out for simplicity". Competition between pension providers over the presentation of the required information risks countering competition in the pensions market.
Instead, Government should mandate all pension providers to provide the necessary information to the single pensions dashboard, hosted by the new single financial guidance body – with an extended timetable for smaller legacy DB schemes to comply.
- Trials show that single page pension passports increase consumer engagement with pensions options. Pension providers should be required to issue them.
- People who have taken guidance are more likely to then take independent financial advice – but this can be expensive for those with smaller pension pots. Technological innovation has a clear role in filling that gap. The FCA should report on outcomes from automated advice with a view to reassuring potential customers that it can be a useful service, and strengthen the advice offer.
Everyone should have a simple, suitable, default pension option
Rt Hon Frank Field MP, Chair of the Committee, said:
"Automatic enrolment has been a runaway success, bringing millions of people on board in saving for their retirement.
We want to expand that success story so that everyone, no matter how they are saving, has a simple, suitable, default pension option, with a low, capped fee.
From that solid base, those who want to choose other options would retain complete freedom to do so. They would be armed with a new range of clear, transparent information in making their choices."
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