Regulators need advice and guidance take-up targets

Speaking at a Westminster Hall debate on March 1, he explained that statistics show fewer people have been taking advice over the past few years than they were before. 

Mills said: “The problem is getting worse because we have more and more people reaching retirement who won’t have any defined benefit pension that can provide the majority of their retirement income.

“More people will be relying on their defined contribution savings, effectively relying for their quality of life in their retirement on that decision they make when they reach the state pension age.”

Mills said that some individuals will make the decision on their pension when they reach age 55 and have the chance to take a lump sum.

“It [will] look like a hugely attractive way to solve their present financial woes, not realising it makes their future a lot worse because they’ve just lost a quarter of what they had and that probably wasn’t enough in the first place,” he said.

He argued that the take-up of pensions advice and guidance is far too low, and to tackle this the government needs to set targets or benchmarks. 

“We need to set an aspiration for the regulators as to what the level of take-up of advice and guidance needs to get to, and then we need to have a plan for how we get there,” Mills said.

“If as a parliament we don’t set the regulators’ target, a benchmark and aspiration, call it what you will, then they’ll flounder around and go around in circles.

“I think we need to be clear and say here is where you need to get to, here is how long you’ve got to get there and, if you don’t get there, then we will have to take some different measures of our own to do that.”

Mills also explained that during the pandemic, a lot more people who were at work over a certain age have now decided they like being furloughed, and can leak out their retirement savings over a longer period, use their lump sum and not have to go back to work. 

“That may be a terribly bad decision that they’re making,” he said.

“I think the government is now waking up to the fact that we’ve lost hundreds of thousands of people from the workforce who were there before, who could come back but who quite like not to.”

He argued that employment has grown but participation has reduced and take-up of the advice and guidance is down.

“Since pension freedoms came in, HMRC data tells us that £45bn was taken from pension pots in the first six years of the pension freedoms policy, £3.7mn defined contribution pensions were accessed in this period, and over £2mn of those pots were cashed in full,” Mills said.

“It’s worth noting that we do still have this problem of data. The data we have is pots being accessed, not pots by individuals, so we don’t know how much of that data is one individual accessing 15 different pension pots and 15 different jobs.

“We still can’t seem to get that data to be gathered in the right situation,” he added.

This article originally appeared on FTAdviser.com