Pensions Guidance and Advice

Alan Brown Excerpts

Tuesday 1st March 2022 Westminster Hall

[Nigel Mills]

The hon. Lady is absolutely right. It is a sad fact that a small proportion of people, but all too many individuals, have not just made a decision that is not optimal but been tricked into something that has cost them the whole or nearly the whole of what they have saved during their working life, because they did not understand that what they were being promised by the snake oil salesman—the conman—was utterly unachievable.

With some kind of briefing or guidance, they would have had a chance to realise that such an outcome was not possible, that there was no way they would get that kind of return and that such an investment strategy was not remotely sensible. We could have saved them in that situation. We must try to get as many people as possible to take up this service, so that we can put such protections in place and people will have a chance to know that such schemes are not real.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

I agree completely with what the hon. Gentleman says. I know I have probably used words that he maybe would not, but does he share my concern about the Minister’s intervention? The Minister effectively said, “I listened to the hon. Member’s speech. We are doing a stronger nudge—job done; nothing to worry about.” Is that not complacent?

[Nigel Mills]

I would not use that word. It is a little unfair on the Minister, who has put in place some measures that have not yet come into force, to say that he is being complacent. I urge the Government to see those measures as part of the set of solutions we need.

The Government’s role is to set the aspiration for the level of take-up that we need, so we can then judge the success of their policies. It is a slightly strange situation and we had some rather baffling evidence sessions with the regulators during the recent Work and Pensions Committee inquiry. Everybody accepts that the take-up is not high enough and we should do more, but when asked, “What ought take-up to be?” they say that they do not know and do not have a number. So we know that what we have now is not good enough, but we do not know what is good enough, and therefore we cannot tell when we are going to get to good enough.

It is a slightly strange way of running a strategy, an organisation or a service to not know what is good and what you are aiming for, but to start trying to aim for it in the hope that you might get there by luck. We need a direction of travel, and someone to say, “We think the right target is 60%.” That is the number we had in our Select Committee finding and it seems quite reasonable. We are not asking for 100%, which would not be practical or useful, but we could set that kind of guide.

--- Later in debate ---

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Ms Bardell. I congratulate the hon. Member for Amber Valley (Nigel Mills) on bringing this debate forward. I know that he has followed this issue for some time, always with diligence and concern for the outcomes experienced by pension savers. I also thought that he spoke very well in the recent social security benefits up-rating debate.

The hon. Member set out clearly how complex pensions can be and the need, therefore, for people to access impartial advice to get the best outcome from the pensions that they have worked hard to save for over their lives. His final point was that if we do not run a trial of auto-appointments, people will continue to make the wrong decisions and be at risk of being scammed, and there will still be no evidence of the value of auto-appointments.

We also heard good contributions from the hon. Member for Kingston upon Hull West and Hessle (Emma Hardy), from the Chair of the Select Committee, the right hon. Member for East Ham (Stephen Timms), and from the hon. Member for Grantham and Stamford (Gareth Davies)—and no debate would be complete without the hon. Member for Strangford (Jim Shannon). The hon. Member for Kingston upon Hull West and Hessle and the right hon. Member for East Ham both spoke about the risk of people getting scammed, and we need to remember that. What could be more heart-breaking than working hard all your life, looking forward to a comfortable retirement, and then being scammed out of your lifetime savings? It is awful.

Another thing I would like to draw the Minister’s attention to that needs to be addressed is that there are people who give the wrong advice or scam people, and then set themselves up as a claims management company to advocate for the people who just lost their money. That needs to end. The Government must put regulations in place to stop these people reinventing themselves as claims management companies.

A constituent of mine who is a financial adviser highlighted that her fees as a regulated financial adviser are going through the roof, so people are accessing unregulated advisers who do not pay those fees and can undercut the people providing real advice. That is another subject the Government need to address.

[Chris Stephens]

The Select Committee, of which I am a member, has heard evidence from the Association of British Insurers, the Pensions and Lifetime Savings Association, the Financial Inclusion Commission and Age UK, which all say that there should be an evaluation trial of auto-appointments as a means of increasing take-up of pension guidance. They are correct, are they not?

[Alan Brown]

My hon. Friend is right; I was going to come on to that. When the industry and all those bodies are saying that there should be a trial of auto-appointments, it is not controversial, and is something the Government should embrace. It was a Conservative Government that set up the Pension Wise advice system as a complementary service to the pension freedoms legislation, so it surely makes sense that the Government want to ensure that as many people as possible access impartial advice.

According to the Association of British Insurers, over £42 billion has been flexibly withdrawn since 2015, but just 14% of defined-contribution pension pots are accessed after the use of Pension Wise. We are talking about potentially billions of pounds being accessed with a high risk of it not being utilised properly for maximum gain. As the hon. Member for Amber Valley pointed out, people might make decisions that suddenly mean they are in higher tax bracket for the first time in their lives. Simple advice would remedy that.

Realistically, those figures should make the Minister sit up right away and pledge to take action. As others have highlighted, Financial Conduct Authority data confirms that the use of guidance and advice has actually decreased in recent years. Again, that should be an urgent call to action for the Government.

In March 2020, the chairman of the Money and Pensions Service, Sir Hector Sants, told the Work and Pensions Committee:

“A significant number of the people who contact Pension Wise will come away saying that, after having spoken to our guidance service, they have concluded that they should do something different from what they had in mind in the first place… There is a figure that suggests that 72% of people are saying they have changed their mind about what they will do as a result of talking to our guidance service. In a way, that is a simple statistic that tells you that the vast majority of people, left to their own devices, will probably make a poor decision.”

Again, £42 billion has been accessed since 2015, but 72% of the small number of people who received advice ended up making different decisions following receipt and consideration of that advice. The level of cash that is being accessed, with poor decisions possibly made on the back of that, is frightening—and, of course, some people are being scammed altogether.

The chairman of the Financial Conduct Authority, Charles Randell, made the following observation when asked about the adequacy of regulatory policy when he gave oral evidence to the Treasury Committee in November 2020:

“This issue about people making poor choices when exercising the freedoms and responsibilities that have been put on them in the last 10 years, through a variety of changes in Government policy, is probably the one that I worry about most of all.”

Does the Minister not share these concerns? I am concerned that he does not. I welcome the fact that the right hon. Member for East Ham highlighted comments that the Minister has made previously that he does not seem to be holding true to. Is the Minister blind to these concerns that everybody in the industry is raising?

The other crucial aspect in all this is that, for those who have used Pension Wise, it has been deemed a success. When the Government have a success story that they can relay, why are they not trying to build on it and enhance it? The 2019-20 Pension Wise user evaluation found that 94% of appointment users were very or fairly satisfied with their overall experience of Pension Wise; 88% of appointment users said that Pension Wise helped to improve their understanding of pension options; and 70% of Pension Wise users correctly answered eight true or false statements relating to their pension options, compared with 43% of non-users. That last statistic is proof of the additional knowledge gained by accessing impartial advice.

In contrast to the evidence gathered since 2015, the Government’s approach to non-advised savers seems to inhabit a space somewhere between “fingers crossed it’ll be okay” and “if savers stuff it up, that’s their own fault”. Again, that brings me back to what the hon. Member for Amber Valley outlined about the known risk that affects savers; he put it well.

Currently, 19 million people are at various stages of their defined-contribution pension journey. Their retirement outcomes depend, first, on the generosity of their employer’s pension offer and, secondly and critically, on the decisions they make at the accumulation and decumulation stages. If a saver has contributed to pensions for over 40 years, surely it is right that the system does all it can to ensure that they take as little time as 40 minutes for a guidance appointment.

The Minister’s response to this issue of low take-up of guidance and advice has not been to address it directly but instead to point to the “stronger nudge”, as he did earlier, or to other pet projects such as mid-life MOTs and pension dashboards. They are measures that I support, but they are not available in the here and now, whereas Pension Wise is. As for the stronger nudge, the FCA and his own Department admit that, on the basis of trials to date, it is unlikely to have a dramatic effect on guidance take-up. Indeed, the trials suggested that there would be an increase of only 8% in the take-up of advice, so that clearly is not the solution.

Once again, I ask the Minister and the Government to commit to a trial of auto-appointments. Two trials could be considered: one with an appointment when a person accesses their pension for the first time, and another—this idea came from the Select Committee—with an appointment at the age of 50, before someone can access their pension savings, which is the kind of mid-life MOT that the Minister supports. Piloting an auto-appointment system for the Pension Wise service is a clear recommendation of the Work and Pensions Committee, and the Association of British Insurers supports it too.

The Committee also recommended that the UK Government should set a goal of at least 60% of people using Pension Wise, the Government guidance service from MaPS, or receiving paid-for advice when they access their pension pots for the first time. Meeting such a target would see billions of pounds being accessed in a way that minimises the risk of poor decision making by people who are not used to assessing such sums of money.

Will the Minister confirm, once and for all, that he supports a trial of auto-appointments, as recommended by the Select Committee and the industry? It is a no-risk option for the Government to implement. Will he confirm the timescale for such a trial? If not, will he say why he is ignoring the advice and why he is willing to allow people unwittingly to continue making bad decisions with their pension pots? If they are accessing that money and using it for the best means possible, it should be able to support not just them but the wider economy better.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

First and foremost, we all wish you well, Ms Bardell. We gather you were doing your best Franz Klammer impersonation down the slopes; I am certain that you will be back on the football field before too long. You are also the third Chair that we have enjoyed in barely a one-and-a-quarter-hour debate.

Today is an odd day, as we have all struggled through the pension-related tube strikes. We have dealt with many known unknowns, both in life and in the speech of my hon. Friend the Member for Amber Valley (Nigel Mills). In broad terms, I was in glorious agreement with him. The wonderful thing about pensions debates in this House is that effectively we are all singing from the same hymn sheet, and trying to get the same outcomes. However, there might be differences in how we reach those outcomes and, in the nine minutes that I have, I will try and address the 35 to 40 points that have been put to me that require urgent answers.

I will defer some of the questions asked by the hon. Member for Kingston upon Hull West and Hessle (Emma Hardy) because, to my great delight—I was told only last week—I am going to the Treasury Committee tomorrow specifically to answer on financial inclusion. That issue was also raised by the hon. Member for Strangford (Jim Shannon). The hon. Member for Kingston upon Hull West and Hessle raised a couple of points that I want to refer to briefly. She described the number of pension pots as four to five; we will probably have 10 to 11. It is a much bigger problem, but we are on it with two particular interventions. In the short term there is the pension tracing service, which I strongly urge all colleagues to recommend to their constituents, because they can be tracked down on the present basis. However, it is relatively basic and clunky; the dashboard is clearly a much better thing.

I will address a specific point about the dashboard at the outset. Many parts of my portfolio and job involve herculean heavy lifting—as the right hon. Member for East Ham (Stephen Timms), who has done my job previously, knows. The dashboard involves the most herculean heavy lifting of them all, taking 40,000 pensions schemes, getting all the data together, making them all talk to one another, incorporating the state pension and doing so in a data-friendly safe way.

I want to put on record my support for Chris Curry and the team. I have to say that I am not aware of such criticisms from businesses. That relates to the point made by my hon. Friend the Member for Amber Valley: data is everything here. It really is. The pension schemes have to improve their data, and once they do, a whole host of positive actions can flow. The dashboard is clearly one of them. It will allow an individual to see what they have, in the comfort of their own home or with an independent financial adviser, and do all of the things that we want them to do. The data flows from the dashboard decisions. The industry is concerned that I am pressing them to get its data together in a robust way; I do not shy away from that. Some people want me to go faster than I am. I would like to think that we are actually going quite fast to get the dashboard up and running. It will be live, in some shape or form, very soon.

That brings me to the specific points made in the debate; I obviously look forward to being grilled on all matters of financial inclusion tomorrow. In my experience, automatic enrolment opt-outs are not actually as bad as the hon. Member for Kingston upon Hull West and Hessle described, but I will take her point away and have a look at it. Obviously, they are a relevant factor.

I want briefly to deal with the point about the FCA. Clearly, my hon. Friend the Member for Amber Valley chose to have the Pensions Minister answer today’s debate rather than the Treasury Minister who deals with all matters of advice and the FCA. That makes my life a little difficult, but we are one Government, so I answer for everything, whatever the situation. The 2020 evaluation of the “Financial Advice Market Review” found that the financial advice market was going in the right direction, with more people accessing advice, but also recognised that some remaining challenges in the market needed further work. The Treasury is working with the FCA on the next steps. The hon. Member for Kingston upon Hull West and Hessle raised the FCA’s stronger nudge approach. I believe that the Department for Work and Pensions is actually going way faster. In 93 days, by my count—on 1 June—the stronger nudge policy will come into law. Although I obviously revere and adore the FCA and Treasury, and everything that they do, the DWP is at the front of that particular queue and is driving that policy forward.

Let me try to address the point about the signposting of Pension Wise by pension schemes. Wake-up packs are provided on an ongoing basis, but we also believe very strongly that impartial guidance from the Money and Pensions Service is a very good thing. MAPS is a very young institution. Parliament decided, following Select Committee reports, to legislate to create it and it melded all the previous operations together. It is a young institution—not even four years old. We are gently trying to nudge it into a greater take-up of all of its services, and it is part of the dashboard delivery service, for example. Although Pension Wise provides guidance about the options for accessing defined-contribution savings, it is primarily designed for those aged 50 and above who are making decisions about how to access such savings.

However, we are ignoring the MoneyHelper pensions service, formerly the Pensions Advisory Service. No one has mentioned it in any way whatsoever. The stats show that there were 113,000 Pension Wise appointments in 2020-21, and that MoneyHelper supported 220,000 people during that time. We are very focused. I understand why, in discussing Pension Wise, we have not discussed in any way all of the great work that the Money and Pensions Service is doing with MoneyHelper on pensions. The number of people using the service went up by 8% in 2019-20.

Separately, a report by the Social Market Foundation, which is a lovely organisation—I revere the fact that any think-tank is doing any work on pensions, and I agree with my hon. Friend the Member for Grantham and Stamford (Gareth Davies) that the more we talk about them, the better—made the point that we need a greater online service. The number of people using MoneyHelper’s digital pension tools has grown by 47%, from 170,000 users in the first quarter of 2020-21 compared with Q1 of the following year. There is much greater usage of MoneyHelper and other online services.

The statistics on MoneyHelper show how much the service helps, but I want to address the stronger nudge. It comes into force on 1 June, which, off the top of my head, is in 93 days. It requires schemes to go beyond signposting to guidance, as they currently do. They will be required to take an active role by offering to book a Pension Wise appointment on behalf of the member when they seek to access their defined contribution savings. That will be presented as a normal part of the process for accessing a pension.

Schemes will also be unable to proceed with any application to access savings until members have either received or explicitly and clearly opted out of guidance. For occupational schemes, the opt-out must be given in a separate communication from the member. We believe that that will ensure that all members are required to make an active, informed choice on guidance before they are able to access their savings. I believe that that strikes the right balance and is the right way forward. Although we all want to do more, Parliament has decided and has legislated for the Money and Pensions Service, Pension Wise and the Department for Work and Pensions to drive forward the stronger nudge as the way forward. I urge colleagues to get behind that in the short term.

In the short time I have left, I want to address fraud. Obviously, we believe that the stronger nudge will help. The Pension Schemes Act 2021 sets out four red flags to address those specific problems, and I pay tribute to the Pension Scams Industry Group and the other organisations with which I have worked. I hope that the draft Online Safety Bill will continue the good work that pre-legislative scrutiny has shown we are doing on pensions and investment scams. I have personally raised that with Google, Facebook, Instagram and LinkedIn. All those companies, particularly Google, need to be acutely aware that it is utterly unacceptable that there are 47 fake versions of Aviva at the top of the online search list, and that that needs to stop. To be fair, those companies can do that themselves without Government action.

[Alan Brown]

Will the Minister give way?

[Guy Opperman]

I do not have time, as I have only 30 seconds left. Those companies do not need Government action. They can stop all of that by simply vetting their advertisers. It is long overdue that Google and others took such action. I sincerely hope that they do so on an ongoing basis, rather than our having to force them to do so at the threat of penalties.

I have totally run out of time, but I thank all colleagues. I genuinely believe we are all on the same pathway and journey, but just nudging each other in slightly different ways.