Pension rule changes from DWP ‘nowhere near enough’ as MPs condemn new proposals
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Pension funds can be accessed from the age of 55 in the UK thanks to pension freedom rules but there can be long-term costs associated with this. Depleting a pension pot too early can severely impact a person’s retirement and as coronavirus emerged, some expressed fears these problems could be exacerbated by people dipping into their pensions to get through this tough period.
On these issues, the DWP have recently launched plans to introduce “stronger nudge” measures to encourage older workers to seek guidance from Pension Wise before taking any withdrawals.
These changes are to be introduced through a Pensions Scheme Bill which is currently working its way through government.
While the proposals have only been around for a short amount of time, they have already been criticised by a number of MPs and pension experts.
In the most recent debate on the bill (a third sitting in the House of Lords which occurred on November 5) the DWP was condemned for their reported limited research.
As Stephen Timms, the Work and Pensions Committee chair who has already suggested amendments on the bill to make guidance more obligatory, said: “In the statement of policy intent of last week, the Department said it will implement a guidance policy based on the ‘Stronger Nudge trials’ of the Money and Pensions Service.
“Those trials did show a very limited increase in appointment bookings resulting from the nudges that were tested, but it is nowhere near enough. That is why the amendment is necessary.
“Auto-enrolling people to Pension Wise appointments fits the bill.
“Starting five years ahead of eligibility will get people thinking while they have time to reflect on their options and make their choices.
“An impartial session will set them on the right tracks and correct misunderstandings.
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“Repeating the invitation each year until the appointment is taken up or is opted out of will equip savers with very important information to think ahead effectively for their financial needs in retirement.”
Stephen went on to commend the Pension Wise service but regretted that usage levels for it remain low: “Pension Wise is the realisation of the pension freedoms policy—the promise that was made at the time of free, impartial, high-quality guidance for those who do not use a regulated financial adviser for pensions decisions.
“It is the main consumer protection in the pension freedom policy—it was not an optional extra—but hardly anyone is using it.
“Pension Wise can be the difference between well-informed decisions leading to financial security in retirement and bad decisions, with pensions scams a real possibility. We need determination to fix that, and the current policy lacks determination.
“We cannot sit back while Pension Wise continues to be an excellent service taken up by hardly anybody. The Government and regulators must end their indifference on this. Aspiring to an 11 percent take-up simply is not enough.
“We need auto-enrolment into a service that enables better outcomes from pension savings.”
This sentiment was shared by Neil Gray, the Scottish National Party MP for Airdrie and Shotts, who was particularly critical of the DWPs claims: “It is worth repeating the point made by the right hon. Member for East Ham that the cited Money and Pension Service stronger nudge trials showed only a very small increase in the number of people who actually went on to have a Pension Wise appointment.
“The DWP claimed that it ‘significantly increased the take-up of Pension Wise guidance’. But, again, this is pure spin.
“The hon. Member for Delyn earlier in the Committee stage said that we should look at outcomes. We agree. The outcome of the stronger nudge trials was to get people to Pension Wise appointments in less than one in ten cases. It moved them from three to 11 percent. A stronger nudge is just not going to be enough, not by a long chalk.”
It should be noted that the FCA were also questioned on pension guidance uptake recently, as the regulator has worked with the DWP and other bodies on the issue.
Julie Marson, the Conservative MP for Hertford and Stortford, pushed Nikhil Rathi, the chief executive of the FCA, on why mandatory assessments aren’t already in place, Nikhil highlighted that funding and practicality remains an issue: “There is also a question of the funding of the service as well and the capacity versus demand.
“I think giving everyone appointments would be quite an expensive way of running that service.
“But what we are quite keen to do is work on these measures around nudging consumers and where we do need to put in some mandatory points around firms contacting proactively and much more frequently we will do so.”
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