Giving clarity around guidance versus advice on pensions should be the number one priority for Government
19 Oct 2015 - Estimated reading time: 3 minutes
Doing so will make it easier for employers to provide much needed support in the workplace, says Hymans Robertson
- Consumer research conducted last month shows that employees are as likely to look to employers as to Government for support around pensions
- This is consistent with the views of large UK employers who believe their workforce is just as likely to look to their company as to the Government for retirement guidance or advice
- 71% of HR heads believe it’s the employer’s responsibility to support employees in preparing for the choices they’ll now have to make with pension freedoms; 80% believe employees will expect it
- Yet almost half think employees will hold their company responsible if they make poor decisions at retirement
- 72% of consumers we surveyed said having a complete picture of what all their pensions plus State pension would provide in retirement would act as an incentive to save – supporting the need for a pension dashboard
- Two thirds are not saving enough for retirement before the effects of freedom and choice are taken into consideration
- In the context of freedom and choice consumers value having a ‘brake’ on spending
- The Government needs to pay attention to and follow the recommendations in this report before bringing in any further shake up of pensions
Commenting on the Work and Pensions Select Committee’s report out today, Chris Noon, Partner at Hymans Robertson, the leading pensions and benefits consultancy, said:
It comes as no surprise to us that pension freedom is not working as it should. We agree that urgent improvements are needed to avoid another financial mis-selling scandal. The government needs to tackle this urgently, and should do so before introducing any further shake-ups of the pensions system. The only way we can create a basis for well-informed choices, avoiding the next big pensions scandal, is by making sure people have access to adequate support both pre- and at-retirement. The obvious place to do this is through the workplace. For that to happen the Government needs to make it easier for people to receive guidance by making it easier for employers to provide it. Providing clarity on the distinction between guidance and advice will do that, so that employers can give their employees much needed support without fear of regulatory reprisal.
Research we carried out last month showed that people look to their employers as much as to their Government for support around the decisions around pensions. Earlier this year we also found that large UK employers think their workforces are as likely to look to them as to the Government. The vast majority of employers do feel a sense of responsibility to help their staff with the complex decisions they now need to make since freedom and choice was introduced, but in our experience are fearful of providing guidance in case it’s misconstrued as advice.
Discussing why the Government should pay attention to the Select Committee’s findings before introducing any further shake-up, he added:
Last month we held focus groups and carried out broader research around pensions. Barely a quarter of people feel in control of their pension and over two thirds don’t know what income they’ll get when they retirement. Interestingly, in the context of ‘freedom and choice’, we also found that people value a brake on spending when they reach retirement. This underlines why the Government needs to avoid a move to a Taxed Exempt Exempt pensions system, which would essentially allow people to take all their pension pots tax free.
‘Freedom and choice’ will undoubtedly see people spending their pension savings faster, and from age 55, increasing reliance on what will be lower State benefits for millions with the introduction of the Single Tier pension in April. Making sure the most recent reforms bed down and are serving savers well should take precedence over introducing far-reaching changes to the taxation system, which will only cause more confusion and disengagement.
Explaining why a pensions dashboard should be an additional priority he added:
72% of consumers we surveyed said having a complete picture of what all their pensions plus State pension would provide in retirement would act as an incentive to save. This even more important in the context of the introduction of the flat rate State pension in April next year. Many believe they will be receiving £151 per week. Unfortunately that won’t be the case for a great number of people – particularly those retiring in the near future. We are hugely supportive of the idea of tracking consumer outcomes. We can already project forward for over 400,000 DC savers who have been run through our Guided Outcomes DC platform and the picture doesn’t look good. Two thirds are not saving enough, and that’s before you take freedom and choice into account and the spending from age 55 that could accompany it.
Encouraging people to save more through auto-enrolment is good but not enough to get people saving adequate amounts. Having no effective brake on spending or support in place to prevent people making poor choices really does raise concerns of a future mis-selling scandal.