The House of Lords added more pressure to the government on Tuesday as a Liberal Democrat-led amendment to the Financial Guidance and Claims bill was passed by 283 to 201 votes.
Last week, HM Revenue & Customs disclosed that more than £14bn has been accessed from defined contribution pensions by over-55s since pension freedoms came into effect in April 2015.
The amendment calls for the standard provision of advice for members looking to transfer money out of their pension. The result follows last week’s successful amendment to the same bill, which seeks to bring forward a ban on cold calling for pensions.
The bill was introduced to the House of Lords in June with the intention of establishing a single financial guidance body.
Pension Wise is doing a tremendous job but not enough people are using it
Ros Altmann, former pensions minister
Last week’s amendment to the bill over a ban on cold calling passed by 253 votes to 205. Neither votes are a guarantee, however, that the government will introduce or bring forward legislation. The amended bill will return to the House of Commons for further scrutiny.
“Thus far, the government has rejected every amendment that has been made to the bill… I do not know whether, when it goes to the Commons, they will seek to overturn the amendment,” said Tom McPhail, head of retirement policy at platform provider Hargreaves Lansdown.
Pension Wise will need resources to match demand
Pension scams and guidance were also discussed on Wednesday, as part of the Work and Pensions Committee's inquiry into pension freedoms.
Those present included former pensions ministers Ros Altmann and Steve Webb, now director of policy at provider Royal London, as well as Michelle Cracknell, chief executive of the Pensions Advisory Service.
During the committee hearing, Cracknell highlighted that 40,000 appointments have been made with Pension Wise in the first six months of this year, compared with 60,000 for the whole of 2016.
“Could we gear up Pension Wise tenfold to meet the demand that we could potentially create if everybody acquiesced?" McPhail said.
“If it’s not mandatory, you’re never going to get 100 per cent of people taking [it] up, and not everyone should,” he added.
Default guidance could help tackle scams
According to research from annuity provider Just Group, 75 per cent of pension savers are in favour of automatically receiving guidance over accessing their pension benefits.
Under current rules, defined benefit schemes are required to ensure that members seeking to transfer out of their scheme receive advice if the pot value exceeds £30,000.
Research from the Financial Conduct Authority has found that, of the 143,752 consumers who accessed their pensions in the third quarter of 2016, only about 10 per cent had a Pension Wise appointment.
Altmann told the Work and Pensions Committee: “Pension Wise is doing a tremendous job but not enough people are using it.”
She said people are being auto-enrolled now but criticised that no help is given when their accumulation journey ends. "We’re not following through at the other end and automatically helping them understand how to deal with their pension savings or avoid losing them.”
She added:"If somebody who’s been scammed went to Pension Wise and had an appointment, the first thing they might be asked is, ‘Is this scheme something that resulted from a cold call or an unsolicited approach?’ That would immediately raise the alarm bells and help avoid some of the problems because they’d be talked through the risks.”
Guidance must not come too late
The committee discussed a range of measures to protect savers from scams and ensure that pension freedoms are being used appropriately. Topics included minimum income requirements for pension freedoms, the development of a drawdown comparison tool and banning cold calls.
After the committee hearing, Webb said: "Guidance is a good thing, no question of that, but guidance at the right time is a better thing.”
He added: “We have to be careful we don’t have mandatory guidance that’s simply at a point when people have already made their minds up, and there’s research evidence that most people have their minds up more than six months out from retirement.”
Select committee probes pension freedoms as concerns grow
The Work and Pensions Committee has launched a new inquiry into the pension freedom reforms, asking whether changes are required to better achieve the policy’s objectives.
Webb warned against “excessive caution” in a system where transfers are largely functioning properly. He cited a lack of trust in pensions previously highlighted by the Financial Conduct Authority, which often guides savers towards transferring money out of their pension and into a cash Isa.
“It isn’t on the whole people blowing the lot on sports cars; they aren’t, and the tax system partly stops them doing that. It’s people who want to access their tax-free cash,” he said.
