Pensions Guidance and Advice

Emma Hardy Excerpts

Tuesday 1st March 2022 Westminster Hall

[Nigel Mills]

I am grateful to the Minister. He did say that he wanted the take-up of pension guidance to be the norm. Even with his changes, which I welcome, the take-up of Pension Wise will increase from a totally inadequate 14% to a really quite unacceptable 22%. I do not know how he defines a norm. I am not sure if there is a written definition of a norm, but I have a feeling that less than a quarter does not count as a norm. In that speech, which I stand by, I said that before they access their pension pot, I want the clear majority of people who have any level of pension savings to have taken guidance or advice.

However, I do not agree that such advice should be mandatory. We cannot put a gun to people’s heads and say, “You cannot have your money unless you sit through this. If you refuse to do it, no matter how long it takes, we’re not giving you your money.” Clearly, we cannot do that, but we can get pretty close to that situation. We need to find processes, techniques and measures that get that percentage up to somewhere much nearer the norm, so that people are not suffering the harm of doing this without understanding the whole landscape of what they are trying to do.

My big concern is not necessarily that people cannot understand the subject, although it is complicated, but that people do not know that there are all manner of uncertainties out there that they have not thought about. It is the “unknown unknowns” that are the problem here.

The beauty of a pension guidance appointment is that it gives people the chance to understand what they do not know, and then gives them the chance to go and find out what they do want to know so that they can make an informed decision. I am not suggesting that we can fix every problem of engagement through an hour or an hour and a half’s pension guidance appointment, but it would give people the tools to get the best possible outcome in their situation.

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

The hon. Gentleman is making an excellent speech. Further to his point, the need for clear and impartial guidance becomes even more important given the current levels of fraud. We are seeing people defrauded from their pensions and given very poor advice, which means they lose out on their savings, so having clear and impartial advice becomes even more important.

[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.

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[Nigel Mills]

I am grateful to the Minister. There is a danger, or there will be if we are not careful, of us starting to disagree on the fundamentals, whereas I thought we had a broad consensus of agreement that we needed to find a way to go further on the issue. Sir Hector Sants chairs the Money and Pensions Service, whose job it is to deliver financial advice and support to people around the country, and even he agrees. Sir Hector said that

“the vast majority of people, left to their own devices, will probably make a poor decision.”

The problem we have is that a large number of people—unless we are able to convince them to take some kind of guidance or input—are at risk of making a very poor decision that they will not be able to reverse. This is not like taking out the wrong mortgage, which people can change after two years. If people take out the wrong pension, they are stuck with it for the rest of their life. It is not fixable if someone has bought the wrong product.

I accept that all manner of other moving fields around the pension situation all have to come together, but if the Minister was saying—I am sure he was not—that the combination of a slightly-easier-to-read statement that gets sent out once a year, and which might or might not get sent out at the same point and that has some advantages, and the creation of a dashboard, which we hope people will engage with and look at regularly, will fix the fundamental problem of our having a pensions system that is hugely complicated and that people do not engage with or understand, even though they will have to make a difficult decision at some point, I am not that optimistic that we will get such a level of engagement through people’s saving journey that they will not need some input before they make their decision.

When we introduced these freedoms—I was on the Select Committee seven or eight years ago—we said yes to providing those freedoms, but the big ask was, “Are we going to help people on that journey?” I am perhaps a little disappointed that the solution that the then Government came up with was the Pension Wise service. At that point, the Government and the regulators expected huge take-up, and we were worried about the service being swamped and unable to cope, but we have found that Pension Wise has exceeded all expectations—except one. The feedback from people who use the scheme is hugely positive, as is its impact on their understanding of the pension landscape and on the decisions they go on to make. The one expectation it has not met has to do with take-up, which is nothing like what it was. In evidence sessions on pension schemes, people were saying that we might get 75% take-up, but we are stuck in the low teens, and the figure has been falling in recent years.

It is slightly incongruous: we introduced a policy of pension freedoms, recognised at the time that the situation would be difficult for people, and put in place a new guidance system to help them. We thought there would be huge take-up, and said that its use should be the norm. A few years on, the position has got worse, and we have more people retiring with only DC pensions—people who need this input. We have this huge gap in take-up, but think that is probably okay, because there are a few things online that people can find. That is a challenge. We need a sense of urgency and direction, so that we can hold the regulators to account for achievement.

I am grateful to all who helped me prepare for this debate and sent me useful briefings, particularly the House of Commons Chamber Engagement Team, which conducted an online survey of people’s lived experience. That chimed with what we see in our constituency casework and in evidence to the Select Committees. It is clear that people do not understand the situation and do not feel well informed during their saving journey, and then have problems over time.

One quote is from Charlotte:

“Guidance and advice is not provided in my workplace, unless you are almost at retirement age, which is way too late.”

Carole said:

“I have tried researching the information online but I find it very confusing.”

Anne, a constituent of mine, said:

“The Government should arrange pension roadshows to assist people with enquiries etc. Employers should hold pension surgeries and ensure guidance is available. There isn’t enough signposting and guidance in place.”

The evidence is pretty clear: there is a gap, and we need to fix that. What are the solutions? The Minister dragged me into talking about solutions earlier than I had planned; I was articulating the problem. Data on the size of the problem shows that HMRC received about £2 billion more than forecast in the early years of pension freedom as a result of people accessing their pensions. That is likely because people took the whole of their pension, as they now can, and became higher-rate taxpayers for the only time in their working life. That was a hugely foolish decision, giving the taxman 20% of their pension. That would not have happened if the pension had been taken out in a smooth way over years.

I am sure the Government do not want that benefit, but that £2 billion was a third more than was forecast. That suggests that something has gone wrong, and that people have not been making the wisest decisions. A Nobel- prize-winning economist has described working out what to do with a pension as

“the nastiest, hardest problem in finance”.

Nobody knows how long they will live, and many people assume they will live fewer years than they do, and end up with the horrible risk of running out of money.

I will move on to the argument the Minister was keen for us to have about how to improve the take-up of Pension Wise advice, and issuing appointments automatically or by default. I am asking for what the Select Committee asked for in its recent report: for the regulator to undertake trials on how to improve the take-up of pension guidance. We are not asking for tens of hundreds and thousands more appointments, and huge costs. We accept that, even with a stronger nudge, we will not get the figure high enough. We could give people an even stronger nudge and look at some of the options. Those include writing to people when they turn 50 or are approaching state pension age to say, “We have made you an appointment with Pension Wise at half-past three on such a date,” and giving them the chance to change the appointment. Or we could go back one step and say, “In six months’ time, you’ll hit state pension age. Before you can access your pension, you need a Pension Wise appointment. Here is the booking number.” There could be other combinations; for example, the pension provider could make planned appointments.

Whatever the trials and the options we look at, we are trying to work out whether giving people an appointment —a real kick—increases take-up, especially in the hard-to-reach groups that are not using the guidance service. I would have thought there were enough good-quality pension schemes out there that are keen to help their members and that would be willing to participate in a trial with the regulator, who could agree the rules and set the parameters. We could do that for a few thousand people on a representative basis.

[Emma Hardy]

The Treasury Committee got a letter on 16 February from the Financial Conduct Authority about the trials and how they have been designed. I wonder if the hon. Member shares my disappointment that it said,

“We are still in a design phase and have not yet determined all these details. Some of the answers to your questions will depend on further work.”

It does not feel as though there is a sense of urgency about the issue.

[Nigel Mills]

I agree. We had the regulator before the Select Committee, and initially she was quite resistant to do anything beyond giving the stronger nudge that the Minister had provided for, because she did not think Parliament wanted that. We should send the message loud and clear that we want to trial these things and see if they result in higher take-up. None of us would want people at Pension Wise to be sitting around at the end of the phone, waiting for calls, which are not coming in huge numbers, if they were providing something that people really do not want; but people who take these appointments value them, and find them useful. There are all manner of ways that call centres around the country handle unpredictable volume. They know what the take-up will be, and then plan everything with their staff; they move calls around so that they can handle surges in volume, or manage dips in take-up.

I am not saying to the Minister, “Bring in legislation to require a pension guidance appointment for every single saver approaching retirement. Resource Pension Wise to provide that that. Hey, if no-one turns up, it’s just money being lost.” But let us trial things that go beyond what he has already agreed to do, so that we get the take-up we all think we need. If people are not turning up, we will accept that it does not work. If people are turning up totally unengaged, and are there just because they think they have to be and have not bothered to do any research on their own finances, and it is a completely pointless conversation, we will accept that the automatic appointment system does not work. However, if we find, as I suspect we will, that it boosts take-up among the harder-to-reach people, let us roll it out more widely, because we can demonstrate the value of it. If we do not trial any of these things, we will be sitting here in a few years’ time with more people having suffered detriment, and we will be scrabbling around for ideas. We will not have the evidence, because we will not have trialled anything. That is all I am asking the Minister to do.

Another idea we have for improving the outcome is moving the line when it comes to what is advice and guidance, and giving better guidance to the pension schemes about what they can tell their members—what common-sense information they can give people about their options. I am slightly cautious on the latter point, because one of the arguments in favour of pension freedoms, and one of the big problems with the annuity market, was that savers were just defaulting into buying the annuity from their incumbent pension provider, and were not shopping around and understanding their position. They could have got a far better outcome if they bought an ill health annuity, or if they went to a different provider. I do not think we can say that the solution to this problem is for an incumbent pension scheme to tell members what four default pathways they have, and to see which one they want to pick.

Some kind of independent, impartial input should be available to savers, so that they know they can shop around and look elsewhere. The place that is the main contact with the saver should be able to give them useful information, and should be required to give them more useful information than they already do. We should find a way for the regulators to move the line, change the guidance or give some examples to schemes, or give schemes reassurance that they are not breaking the financial advice regulatory rules when giving people what is basically common-sense advice. That would be hugely helpful. If we can, we should reform the system—that is the best way I can put it—so that people do not have to incur the full cost of regulatory advice, which is usually thousands of pounds, and so that we can give people more tailored, individualised guidance on the best option for them. That would be a huge advantage.

It is clear that simple Pension Wise guidance is not the journey’s end that people want. They want something individualised. We need to find a way of making that easier and cheaper for them to get, while keeping it safe; we do not want people being led into buying a product by what they thought was impartial guidance. Making those improvements could give us a dramatic improvement in the situation.

I have spoken for longer than I was expecting to, so I will conclude my remarks by reiterating that I do not think that this issue divides us. We all recognise that we have a problem. We welcome the measures the Government have taken to improve the situation, but I urge the Minister to accept that he needs to go further. We need the regulators to take more action. I urge them to take up the relatively straightforward and low-cost trial options that are out there, so that we can see if we can get a better outcome, and can get more people using a high-quality, free, low-risk guidance service. There is literally no downside to people using it; it is a crying shame that it is not used more. That is all we want to see from this debate.

[Hannah Bardell in the Chair]

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

It is a pleasure to serve under your chairmanship, Ms Bardell. I will not repeat the excellent points made by the hon. Member for Amber Valley (Nigel Mills), but I echo many of them. The need for good pensions advice is real and pressing. Nobody jumps out of bed in the morning wanting to think about their pension—apart from everyone here, of course, who did that this morning. It is not top on their list of priorities, but it really matters.

Pensions advice matters more as we see the impact of the increased cost of living. More pensioners are falling into poverty and having to choose between heating and eating. The need for an adequate pension is even more pressing. My interest in this debate comes primarily from my role on the Treasury Committee, where I have taken a particular interest in this subject. In my intervention on the hon. Member for Amber Valley, I referred to the letter from the Financial Conduct Authority to the Chair of the Select Committee of 16 February about what a stronger nudge could be, and about trials to improve take-up of impartial pensions advice. My only criticism was the sense of a lack of urgency. There was a lot of, “Well, we are still in the design phase,” “We could try this,” and “We could try that.” There was nothing concrete.

One point that I would love the Minister to take away is that we need to push the FCA and say, “We want you to firm this up. What exactly will you do? When will these trials take place? When will you have a deadline for designing them?” It feels as though they are using warm words but not taking concrete action.

Obviously, pension decisions are complex, even for the well-informed saver. I have heard that many of us will end up with four or five pensions before we reach retirement, and people are having to try to work out the best advice when they are dealing with these many different pension pots. Gone are the days when people stayed in one career all their life and then retired. This added complexity really matters. I did a Facebook Live session on the subject and, believe it or not, members of the public did engage and were quite interested in the issue. They were particularly interested in how they find out where their missing pension pots were. That was another question that came up, which shows that people do not truly understand this subject.

As I mentioned in my intervention, the lack of high-quality advice leads to people being defrauded, which is heartbreaking. They are not just receiving poor pensions advice; they are being tricked and defrauded. That makes getting impartial advice even more important. We can say to people, “Don’t listen to these charlatans who are trying to steal your pensions. Go to this impartial advice service.” I truly do not think many people know that it is there. The feedback from people who use it is that it is a very positive service that gives really good advice. It makes people feel more informed about how to make their decisions. The difficulty, of course, is that if someone does not know the service is there, they will not go to it for advice, and then they are much more vulnerable to making poor decisions.

I want to mention issues that I will talk a lot about in future: the poverty premium and the hidden costs of poverty, and financial inclusion. It is relevant to mention them in this debate on workplace pensions because the Financial Inclusion Commission estimated in January last year that around 8.5 million workers were excluded from automatic enrolment in workplace pensions because they worked in the gig economy, were part time, and earned too little. Those workers tend to rent their homes,

“and will have little in the way of savings or other assets to draw on in retirement…In addition, employees who are eligible for automatic enrolment may not engage because they…don’t feel they can afford to make contributions out of their income”.

That is another of my concerns. I am hearing from residents who are choosing to opt out of pension contributions because of the cost of living. They do not feel they can afford things day to day, so they do not want to continue making pension contributions, and that is a huge worry that brings to the forefront the fact that everybody needs advice when making such decisions.

Nurses tell me that they are opting out of their pensions. I have tried desperately to convince them that the NHS pension is great, and have asked them to please stay in it, but people are deciding to opt out right now. Partly, they do not fully understand the consequences of the decisions that they are making today. That is why we need to ensure that there is excellent advice. I see that my right hon. Friend the Member for East Ham (Stephen Timms), the Chair of the Work and Pensions Committee, is here, so I will not go into the detail of the Committee’s recommendations.

[Matt Rodda]

It is good to see you in your place, Ms Bardell. My hon. Friend is making an excellent point about the very real difficulties facing so many families. Does she agree that she is, in part, referring to the wider cost of living crisis and its worrying knock-on effects on many, many families? They feel forced to make these terrible decisions because they are struggling to get to the end of the week as a result of rising heating and fuel bills.

[Emma Hardy]

My hon. Friend is absolutely right. The message that we would like to get to those who are making savings is: “Do not do it by not contributing to a pension, because you will need that money in future.” That is why we need important, impartial advice.

I am not a pensions specialist. I am just somebody with a keen interest in the subject because I see what happens to too many people when they go into retirement without the pensions that they need, and I see what happens when people are given poor advice and are defrauded. People just do not understand. They choose to take the lump sum today, not realising it pushes them into a higher tax bracket, and not realising the consequences for their future income. They just do not fully understand all the decisions. I truly believe that if we give people better advice, they will make decisions that mean we will, hopefully, have fewer people in poverty in future.

As I said, I was disappointed by what the FCA said in evidence to the Treasury Committee. We need the firm and clear message from the Government that they will get on with the trials. They should not spend any more time messing around with them. That is a priority; it would help get the situation moving more quickly.

[Several hon. Members rose—]

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[Matt Rodda]

The hon. Gentleman makes an excellent point; we do need to apply common sense to these very important matters. As I was saying, the Pension Schemes Act made it illegal to cold call and offer advice, in an attempt to reduce the number of telephone scams. Obviously, there are other forms of scams.

[Emma Hardy]

My hon. Friend is making an excellent speech. I think everyone would accept that the sophistication of the fraudsters is developing day by day, and that both legislation, and police and the Government action, is playing catch up—as it always will. Therefore, there is an urgency to deal with this; while the Government might have dealt with the telephone matter, scams are now more likely to be online or via other avenues. We need to make this a priority.

[Matt Rodda]

My hon. Friend is absolutely right that, sadly, technology and the ability of fraudsters is racing ahead. We need to take far more urgent action to tackle these awful problems. In fact, she has anticipated my next point; I hope that the Minister will clarify the Government’s position on this. I understand that he may be interested in the possibility of this action being included in the Online Safety Bill, and I ask him to update us on the discussions he has had with his colleagues. That Bill offers all sorts of possibilities to tackle these dreadful frauds. I hope that the Government will take determined action to tackle those problems, given that they have legislation that could address them in an appropriate and timely manner.

I will briefly mention some concerns about the roll-out of the dashboard and one or two other tools. Like Members across the House, I welcome the Government’s approach in attempting to devise the dashboard, and I recognise the need for greater information, but I understand from speaking to the industry that there are a series of technical problems. We should not let those delay the process too much. I ask the Government to take on board the industry’s views on that, and to be careful to ensure, as it is rolled out, that the dashboard is robust. I see that the Minister is nodding; I am sure that he will want to elaborate on that. It is important not only to achieve the dashboard, but to make sure that it is a high-quality product that offers the hoped-for level of reassurance and advice.

It is fair to say that the Government are taking rather small steps in the right direction, but they need to do so much more on the issue of advice. I hope that the Minister will elaborate on those points and reassure us that he is addressing this issue with the level of energy that is needed.