- Low PensionWise take-up still leaves people at risk of taking money out too soon, paying unnecessary tax and buying unsuitable or scam products.
- The free impartial guidance service was set up to help people make the most of their pensions after Pension Freedoms and works well but has not been promoted by providers.
- Only sending customers to PensionWise after they’ve already decided to withdraw money is too late – ideally they need this around age 50.
Stronger nudge rule for PensionWise start today: New requirements on pension providers and trustees to offer a PensionWise appointment to any customers wanting to start taking money from their pensions start today. This is meant to ensure more people will be nudged towards using the free, impartial guidance service that was specially set up by Government to ensure people can make properly informed decisions about how best to use their hard-earned pension savings.
Free guidance was supposed to be an integral part of pension freedoms: After new rules revolutionised pensions in 2015, there has been far more freedom and choice for people about when and how to use their pensions. Most people had to buy an annuity at a pre-set age, which was often poor value and unpopular. The Government always recognised that these can be complex decisions, so people need independent help, rather than just being left without any guidance and potentially at the mercy of scammers or unsuitable products offered by their existing pension providers.
Government set up PensionWise but its excellent service is little-used by unadvised customers: PensionWise was started by the Government and offers free, impartial information and discussions to explain the options and risks of pensions. Staff are trained to an extremely high standard and the service consistently receives customer satisfaction ratings over 90%. Unfortunately, though, around 9 out of 10 people who withdraw pension money do not use PensionWise at all. Many end up losing their money to scammers, withdrawing money too soon, paying too much tax or buying unsuitable annuity or drawdown products. Not everyone can afford or wants to take paid-for professional advice, which can help them find the best product and explain all their options.
Pensions industry did not get behind PensionWise: PensionWise is so important to help avoid costly errors, but the pensions industry has not really promoted the free guidance model. Naturally, providers often prefer their customers to just be guided by their own helpline, rather than an impartial source which may encourage people to move to another provider offering a wider range of products. Although providers will now have to offer everyone an appointment, that is very different from ensuring they actually use the service.
Offering guidance after people have already decided to withdraw money is too late: People really need to speak to PensionWise before the point at which they have already decided to take money. And the Money and Pension Service trials showed that those offered a PenisonWise appointment before age 55 were more likely to take it up than those who could already withdraw. Once they have already called their company to take some money, they are less likely to be interested in hearing reasons not to.
Ideally, PensionWise guidance would be most useful around age 50, before money can be taken: People need to understand the benefits and risks of starting withdrawals in their 50s or early 60s,while still relatively young, and especially before they even retire. They need someone to help them understand all the tax implications of different decisions, how to plan to make the most of their pensions, proper consideration of charges and the range of products or services they can find.
PensionWise can help deter people from taking money too early: One of the most important messages PensionWise can offer during its free 45-minute guidance sessions, could be to not take money from the pension at all if not really needed. The service can explain the many advantages of keeping money invested and also contributing for longer after age 55, for those who are still working or have other savings. Pensions could be the last money they should spend, however helping people avoid irreversibly depleting their fund too soon is something that most providers seem reluctant to do. This may be partly because they earn more money on other products such as drawdown or annuities, than on the untouched pension. Government encourages people to pay into private pensions in order to avoid later life poverty, but that means keeping money into their 80s and 90s, rather than spending too much too soon.
Stronger nudge is welcome, but not enough: So, while a stronger nudge is welcome, it is unlikely to be enough to ensure people get the help they really need to make better decisions about their long-term future and make the most of their pension savings for the rest of their life. It would be great to see far greater use of the PensionWise expertise.