The House of Commons debated the feasibility of default guidance and the future of private sector pensions during the second reading of the financial guidance and claims bill on Monday.
The secretary of state for work and pensions, Esther McVey, and pensions minister Guy Opperman responded to questions from MPs in a session that saw members voice concerns over corporate behaviour and financial guidance.
There was praise from across the house for the planned new single financial guidance body, which will replace the Money Advice Service, the Pensions Advisory Service and Pension Wise.
In a sense, the Money Advice Service never really lived up to its potential
Tom McPhail, Hargreaves Lansdown
Questions over the feasibility of default guidance for savers looking to access pension freedoms, and the regulator’s ability to tackle corporate excess, were put to the government.
Take guidance to the consumer
Concerns have persisted over the poor take-up of financial guidance among consumers. According to the Financial Conduct Authority, 25 per cent of savers who withdrew their defined contribution pension pots subsequently spent all (6 per cent) or most of it (19 per cent).
“In a sense, the Money Advice Service never really lived up to its potential for a variety of reasons, whereas Pension Wise have done a pretty good job [and] TPAS has done a pretty good job,” said Tom McPhail, head of retirement policy at platform provider Hargreaves Lansdown.
“They bring different things to the party though. Bringing them all together under one roof should deliver some economies and efficiencies, which should allow, hopefully, better overall provision of public guidance,” he added.
McPhail called for the new body to collaborate with the financial services industry and design an offering that takes guidance to the consumer, instead of expecting savers to seek guidance themselves, “something that clearly most people are reluctant to do”.
Nudging savers
There was cross-party support in the Commons in favour of default guidance for savers accessing pension freedoms. New Labour shadow pensions minister Jack Dromey, and the Conservative MP for East Renfrewshire Paul Masterton, were among those who called for default guidance.
The Work and Pensions Committee has recommended that default guidance be made mandatory. Opperman agreed with the need “for people to receive a further nudge” towards guidance.
Former pensions lawyer Masterton said: “I think looking at a nudge is fine. There’s no point I think [in] having an opt-out system which is so easy that opting out becomes default.”
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He pointed to the success of auto-enrolment, which has taken advantage of pensions savers' inertia and subsequently kept them within the initiative.
“I would like to see default guidance being there purely as a back-up,” he said. Default guidance would exist “as a back-stop” within retirement statements for over-50s, which could compel those six months from retirement to seek guidance.
“I think that could be as simple as being able to show that you have engaged with Pension Wise, I don’t think it needs to be a particularly high barrier,” he added.
Malcolm McLean, senior consultant at Barnett Waddingham, described the government's position on default guidance as “confusing”.
“The session ended, as far as I can see, [with] a commitment to do something about encouraging people at the very least to take guidance, but not actually forcing them to do so,” he said.
McLean opposed the idea of mandatory guidance, citing unpopularity with consumers and the potential burden it would place upon the imminent single financial guidance body.
