Pensions Guidance and Advice

Stephen Timms Excerpts

Tuesday 1st March 2022 Westminster Hall

[Stephen Timms (East Ham) (Lab)]

I start by congratulating the hon. Member for Amber Valley (Nigel Mills) on securing the debate and on his opening speech.

There was a serious flaw in implementing the pension freedoms. They were announced by George Osborne in his Budget speech in 2014 and implemented the following year. He said in his announcement that

“no one will have to buy an annuity. We are going to introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution schemes will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.”—[Official Report, 19 March 2014; Vol. 577, c. 793.]

It was a very clear recognition of the risks involved in people having much more latitude over their pension savings—often the largest sum of money they will ever have access to—and that the Government needed to ensure that everyone had guidance to help them make sound decisions. However, that guarantee has never materialised, and the hon. Member for Amber Valley was absolutely right to say that hundreds of thousands are accessing their pension pots without understanding what they are trying to do.

We do have the Pension Wise service, which is excellent. It is free and impartial, as George Osborne promised, and as the hon. Member for Amber Valley said, it gets very good ratings from those who use it—the problem is that very few people do. As my hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy) rightly said—I apologise to her for being absent for some of her speech—one of the reasons why Pension Wise is important is so that people can avoid being scammed. In June 2015, I received from the Treasury the answer to parliamentary written question 2227, which said that

“Pension Wise was launched to help people understand their options when taking advantage of the pension freedoms, including how to spot and avoid scams.”

Over the past seven years, there has been a very big phenomenon of pension scams that it is in everybody’s interest to prevent. So the default should be that people get a Pension Wise appointment.

[Chris Stephens (Glasgow South West) (SNP)]

Is the Chair of the Select Committee as concerned as I am that, despite Pension Wise being an excellent service, the number of Pension Wise appointments is actually falling? There is real concern here, which is why many of us want to see auto-appointments.

[Stephen Timms]

The hon. Gentleman is absolutely right.

The importance of guaranteeing guidance was stressed repeatedly, not just in George Osborne’s announcement but by the Government in the couple of years afterwards. The Treasury’s public financial guidance review, published for consultation in March 2016, said:

“Guidance is vital to ensure that individuals are fully aware of their options before they make a decision on what to do with their retirement savings”.

The hon. Member for West Worcestershire (Harriett Baldwin), who was then Economic Secretary, said in April 2016 that the Government were introducing

“a requirement that, in effect, ensures that consumers with a high-value annuity receive appropriate financial advice before making the decision to sell their annuity”.—[Official Report, 19 April 2016; Vol. 608, c. 876.]

In April 2018, her successor—the current Economic Secretary—the hon. Member for Salisbury (John Glen), said that before proceeding with an access or transfer application,

“subject to any exceptions, schemes must ensure that individuals have either received Pension Wise guidance or have opted out.”—[Official Report, 24 April 2018; Vol. 639, c. 831.]

That commitment, which the Minister appeared to believe he was delivering four years ago, has never been delivered.

The Treasury has very good reason to be concerned that people should make sound decisions in this area, but so does the Minister’s Department. Baroness Buscombe, when she was a Minister at the Department for Work and Pensions, said in May 2018 that

“We all want people to make more informed decisions and to make it the norm to use Pension Wise before accessing their pension.”—[Official Report, House of Lords, 1 May 2018; Vol. 790, c. 1995.]

Let me quote back to the Minister what he said in a debate on the Pension Schemes Act 2021, that Pension Wise should become the norm. He has since distanced himself a bit from that view, but he did express it: on Third Reading, I said that I was sorry he had not followed Baroness Buscombe and expressed the view that Pension Wise should become the norm, and he intervened on me to correct me. He said:

“I do—I said so.”—[Official Report, 16 November 2020; Vol. 684, c. 136.]

I responded to his intervention by welcoming the apparently universal agreement that taking up Pension Wise guidance should be the norm. Everyone agreed, but in October 2020, the Department published the “Stronger Nudge to pensions guidance” statement of policy intent, which said that the new nudges that would be introduced would increase take-up from one in 33 to one in nine. The most recent figures quoted by the Social Market Foundation last week suggest that take-up now stands at about one in seven.

As the hon. Member for Amber Valley said, the expectations at the start were way higher than that. Michelle Cracknell, the then head of the Pensions Advisory Service, which was subsequently absorbed into the Money and Pensions Service, said in evidence in October 2014 that

“ambition is that the take-up rate will be very high, with over 75% of people taking the guidance”,

but that it might only be 25% to start with. In fact, it has never got anywhere near 25%, let alone 75%.

The Committee’s concern about Pension Wise take-up is long-standing and goes back well before I became Chair, to the period years ago when the hon. Member for Amber Valley was a member of the Committee. The Committee’s 2017 report stated:

“Free and impartial Pension Wise guidance, provided by telephone or face-to-face appointment, is greatly valued by those who use it. Take up, however, is not high enough.”

The report went on to point out that

“the existing Pension Wise promotion regime”

had

“proved insufficient.”

It is a very good service: nine out of 10 of those who use it report high or very high satisfaction—that is a pretty impressive—but it is hidden away from most people. The default ought to be that people get an appointment. That is why the Committee has recommended at least trialling automatic Pension Wise appointments.

Sir Hector Sants, the chair of the Money and Pensions Service, told the Committee in March that 72% of people change their mind about what they will do with their pensions savings as a result of talking to Pension Wise. As he pointed out,

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

As far as I can see, the Government’s current policy will leave the great majority of savers in exactly that position.

We need to do more. Government and regulators need to end their indifference on this. We need at least a trial of auto-enrolment into a service that enables better outcomes from pensions savings. There will no doubt be difficulties, but let us at least try it out. The Money and Pensions Service has told the Committee that it would be very happy to support a trial.

The Committee recommended that

“the Government sets a goal for the Money and Pensions Service for the combined use of Pension Wise and paid-for advice when accessing pension pots for the first time”

of

“at least 60 per cent”.

The Minister suggested in his intervention that he thinks use might not be far from that level at the moment, so let us use that as a clear goal. The Committee also recommended

“that automatic Pension Wise appointments are trialled.”

We suggested

“two trials: one with an appointment when a person accesses their pension for the first time and another at the age of 50, before they can access their pension savings.”

I commend those proposals and recommendations to the Minister.