Pensions Guidance and Advice

Jim Shannon Excerpts

Tuesday 1st March 2022 Westminster Hall

[Jim Shannon (Strangford) (DUP)]

May I start by wishing you a return to full health and strength, Ms Bardell, so that you are able to play football again? At the moment, it is quite unlikely that you are able to. It is nice to see you here.

It is a pleasure to hear the hon. Member for Amber Valley (Nigel Mills), who I thank for securing the debate. It is no secret that I am totally sold on the pensions issue. I know its importance, and I have expressed that in previous debates. As a teenager, I was encouraged by my mother—you never say no to your mum—to take out a pension at a very early age. Obviously, over the years, we have taken out a few others as well. There is no doubt in my mind that, in these uncertain times, it is more important than ever that people ensure not only that they have a pension, but that they have the one that works for them.

I am pleased to see the Minister in his place. I know that, like me, he is sold on this issue. We can see from his earlier response that he is energetic and keen to respond to hon. Members’ questions.

I did a quick round robin in my office among the six staff I employ. Of the six, only two actively check their pensions—one personally and one with her financial adviser. I thought having a financial adviser was quite impressive. Some staff are obviously very aware of the future. The other four members of staff, ranging in age between 20s and 40s, have no knowledge of what to do with their pensions. I think that is query. They have a pension—that is good news—but they have no idea what it really means. That is the question and that is the thrust of this debate.

Without a UK-wide perception of the importance of pensions, we may be in trouble. People must be aware that it is not enough to know that they have a pension; they should be aware of what it is and actively try to understand what it will do for their future.

I received a detailed briefing from Just Group, which highlighted that, as noted by the Financial Inclusion Commission in January 2021,

“pensions have largely been absent from the financial inclusion debate—even though they are a major factor in ensuring people are financially and socially included in retirement.”

The concepts, terms and associated risks are unfamiliar to most, which creates risks for savers when research shows that the complexity of related decisions is high and the familiarity with the products, options and processes is so low.

[Guy Opperman]

I am trying to make it a tradition to always intervene on the hon. Gentleman in any debate. I feel that Parliament is better when he intervenes, so I have decided that I will always try to intervene on him. The hon. Gentleman raised the point that pensions are not part of the financial inclusion debate—I look forward to appearing in front of the hon. Member for Kingston upon Hull West and Hessle (Emma Hardy) tomorrow, sort of. [Laughter.] The serious point is that the financial inclusion forum, which was set up after the Financial Guidance and Claims Act 2018 was brought in, specifically has Ministers from the Treasury and the Department for Work and Pensions working together. While it is not the main event—I totally accept that—there is no doubt that a real effort has been made. I would urge those who doubt my comments to look at the specifics of the reports of that financial inclusion forum.

[Jim Shannon]

I never doubt the Minister’s commitment to do what he says; I am sold on it already.

The Government created Pension Wise in 2015 as a free, impartial guidance service for people to use before accessing defined contribution pensions under the pension freedoms policy. There has been a lot of change in policy direction. The service was intended to enable informed decision making and has received consistently excellent feedback. User evaluations found that 94% of Pension Wise appointment customers were either very or fairly satisfied—at 77% and 18% respectively—with 97% saying they had already recommended or would recommend the service to others. That is good news for Pension Wise, but it also leaves people more informed and better equipped to avoid pension scams than non-users.

However, Pension Wise usage remains low and has actually fallen over the last three years. I do not think that we can ignore that. FCA data shows that the number of DC pension pots accessed after Pension Wise was used fell from 94,744 in 2018-19 to 94,274 in 2019-20, and down to 81,805 in 2020-21—a 14% reduction. We cannot ignore those facts. Perhaps the Minister will tell us how we can energise that again. Similarly, the number of pensions accessed via a regulated financial adviser fell by 4% in that period. That is important because Pension Wise provides an opportunity for savers who do not access financial advice to at least understand their options and speak with a professional who can impart key, relevant information, answer their questions and correct misunderstandings. However, the FCA data confirmed that hundreds of thousands of savers are accessing their pension benefits each year without first using Pension Wise, even though appointments are available for free. We must reach that mindset and change that.

There is clearly a massive breakdown in communication with our working people regarding pensions and the fact that they should have an active role in that respect. There is a fear concealed behind the attitude of my younger staff, which we should perhaps look at, that they “don’t do finance”—those are their words. When I asked whether they had ever topped up their pension with additional money in their account, they looked at me blankly and asked, “What does that mean?” We must get the message across, beginning in schools and throughout working life, that pensions are not something to be scared of.

Ms Bardell, you have been kind with your time, as have other hon. Members, so I will conclude with this point. A pension is a part of life, in preparation for the hopefully happy days of retirement—hopefully people will all see that. However, what will add to that happiness is a working pension that can provide when we cannot and do not work. We all have a part to play in that. I look to the Minister, as I always do—I know that he understands where I and others are coming from—to outline how we can get the engagement that is apparently, for some, missing.

[Hannah Bardell (in the Chair)]

Before I call on the Front Benchers, I will just say that I expect there to be at least a few minutes left at the end for the hon. Member for Amber Valley (Nigel Mills) to wind up.

--- Later in debate ---

[Matt Rodda (Reading East) (Lab)]

It is a pleasure to serve under your chairship, Ms Bardell. I pay tribute to the hon. Member for Amber Valley (Nigel Mills) for what I thought was a very thoughtful and knowledgeable speech, which has left us all with a great deal of food for thought.

I also thank the Chair of the Select Committee, my right hon. Friend the Member for East Ham (Stephen Timms), and Members across the House, in particular my hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy) and the hon. Members for Strangford (Jim Shannon), for Kilmarnock and Loudoun (Alan Brown) and for Glasgow South West (Chris Stephens). In addition, the hon. Member for Grantham and Stamford (Gareth Davies)—I beg his pardon—spoke with great knowledge of the sector; I appreciate his detailed explanation.

I do not want to completely rehash or repeat points that have been made by colleagues, but I want to focus the Minister and ask him for a response on one or two very important things. First, however, we should acknowledge, seven years on from their introduction, that while increased pension freedoms have brought greater flexibility, they have also resulted in a potentially greater degree of risk. Although advice services such as Pension Wise have played an important role in making advice more available, the service’s own figures show that just 14% of savers are accessing that advice. That really is not good enough.

Clearly, most people will make a decision about their pension—a decision of this scale—only once in their lives, so it is staggering that only 14% of people are receiving appropriate advice from Pension Wise. Imagine if only 14% of people were seeking advice for any other major financial decision—obviously, alarm bells would be ringing in Ministers’ offices and across the relevant sector. We have to reflect on that, so I hope that the Minister will try to address some of the thoughtful and well-made points raised by the hon. Member for Amber Valley and others.

I also want to draw the Minister’s attention to the fact that the same points have been raised by a number of other voices outside of the House today, so I hope he will go into this issue in some detail. I hope, in particular, that he will address the point made by the hon. Member for Amber Valley that many of the people who are not seeking advice have smaller pension pots and possibly less financial experience, and may need a greater degree of support, while those seeking advice appear to have larger pension pots and, arguably, may have a bit more financial experience. That seems to be the wrong way around.

I hope that Government policy can focus on that and, in particular, that they will look at some of the behavioural points—the nudges—and ways that they may legitimately assist people in this important matter. The Chair of the Select Committee also raised some interesting and thoughtful points on the issue of the potential trial service. I hope the Minister will comment on those.

I appreciate that time is limited, so I want to draw the Minister’s attention to another key area; I hope he will update the House on what the Government intend to do on this matter. The flip side of the lack of advice is the very sad and quite worrying growth in the number of scams; it is interesting that the two things have happened at the same time. While organisations such as Age UK have produced guidance to support those who may be vulnerable, it is really the role of Government to do much more on this important issue. Again, as with the issue of the lack of advice, the question of scams has been highlighted by the official Opposition, the Work and Pensions Committee, former Ministers and other respected figures such as Martin Lewis.

The pensions industry estimates that more than 40,000 people may have been cheated out of £10 billion-worth of pensions savings since freedoms were introduced in 2015. Action Fraud has reported that pension scams are becoming one of the UK’s most common types of fraud. These scams are often harder to spot than expected, even for those with good IT or tech skills. Research by Citizens Advice showed that one in eight people who said they were confident with technology found it difficult to spot a scam. However, it is possible to take action against that sort of fraud; as the Minister knows well from his involvement in the passage of the Pension Schemes Act 2021, the Government have taken action on telephone fraud, which is a related type of scam.

[Jim Shannon]

The hon. Gentleman is absolutely right. If someone is approached by a person with a scheme to improve their pension that looks too good, it probably is too good. Be careful—if someone promises you the world, the stars and the moon, there is something wrong.

[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.