Why we need to see a trial for automatic Pension Wise guidance

MPs on the Work and Pensions Select Committee (WPC) have thrown their weight behind calls for trials of automatic appointments to pension guidance and, like many in the industry, writes Stephen Lowe, I hope the government listens and acts decisively to support the recommendations...

WPC chairman Stephen Timms did not mince his words recently when discussing 'nudges' recently: "Without intervention to drive up dramatically the numbers receiving advice and guidance, savers will make poor decisions - and, in far too many cases, become scam victims - and the pension freedoms, far from living up to their name, will instead trap people in an increasingly confusing web of complexity."

The free, impartial and independent guidance offered by Pension Wise was a key consumer protection measure introduced as part of the 2015 reforms. It recognised that if you are going to ask people to take on more responsibility and risk, they will need more information and support.

Pension Wise offers an excellent service, according to its users, but too few are taking up their entitlement. There is no evidence that the government's ‘stronger nudge' plans will fix this problem.

The WPC seems to agree and wants the government to stop pussyfooting around. Perhaps in the spirit of ‘what gets measured gets managed', it calls on the government to set a target of at least 60% of individuals (not pots) receiving guidance and advice.

And it is calling for a trial to see whether automatically booking individuals into Pension Wise appointments from age 50, before they've made up their mind on how to use their savings, might deliver the significant boost required to reach that target.

Such a trial has the backing of the Money and Pensions Service, the Association of British Insurers, Financial Inclusion Commission, Age UK, the Centre for Ageing Better, as well as other organisations.

While trials of the government's ‘stronger nudge' option did show an uptick, a generous-spirited person would describe it as "relatively modest".

But those trials were important for three key reasons.

1.????They proved the nudge piloted will only deliver marginal gains and not a significant shift. This problem needs something stronger than a nudge.

2.????They also showed delivering guidance when people have already made up their minds is of limited use - more likely to be seen as a hurdle than a help.

3.????Some key groups - those with least financial understanding or resilience - were less keen to be nudged.

As the committee heard from the Financial Services Consumer Panel, there is a disconnect between people's experiences with automatic enrolment into workplace pensions and the support they receive when they come to access their pensions.

Automatic enrolment might more accurately be described as a shove rather than a nudge - but one that that has seen membership of defined contribution occupational pensions rise from 2.1m to 21m in less than a decade. That's a stark contrast to the gentlest of nudges to the guidance many will need as they face the complex choices about how to use their pension savings.

There are those who say ‘people with advisers don't need Pension Wise'. Nobody is suggesting Pension Wise is a replacement for full financial advice but most people don't have advisers and those that do could opt out of the automatic appointment if they wish.

The beauty of automatically booking people into a Pension Wise appointment is it encompasses those in most need of support - people with the least financial resilience or understanding who may not know what it is but arguably have the most to lose by missing out.

Last year's Financial Lives report, the Financial Conduct Authority's flagship survey of UK consumers, highlights this very problem. While just under half (48%) of those aged 50-64 with defined contribution pensions had heard of Pension Wise, this fell to 30% among those with reduced financial capability and 33% of those with lower financial resilience. Guidance usage was also far lower among these groups than the average.

Guy Opperman is the minister for pensions AND financial inclusion. His focus is not just on boosting participation in pensions but ensuring people, especially those most excluded from financial advice, get the guidance the government promised them.

Finally, there's the thorny issue of funding. We are all familiar with the calamitous cries of how much it will cost and some big numbers are bandied around, but let's get this into perspective. The National Audit Office says the DWP is the largest spending government department, with total expenditure in 2019-2020 of ￡199.1bn.?

MPs on the WPC have called for nothing more drastic than a trial of automatic appointments to Pension Wise. Surely the DWP can find a morsel to fund such a trial - even if just to make sure savers get the most from the ￡100bn+ pumped into the workplace pension schemes of automatically enrolled workers each year through employer and employee contributions.

Piloting automatic appointments is the only big idea on the table. If the government chooses to ignore the calls from the influential WPC and a wide range of other industry and consumer professionals it is effectively admitting defeat and a rationing of the service.

https://www.professionaladviser.com/opinion/4043733/stephen-lowe-trial-automatic-pension-wise-guidance