Opperman tells insurers to do more for savers

Pension freedoms have been subjected to increased scrutiny of late, not least by the Work and Pensions Committee in its recent inquiry. The Financial Conduct Authority has also voiced concern over the number of people who enter drawdown unadvised or without shopping around, while support is growing for alternatives to pure defined contribution, in the hope of better outcomes for savers.

I urge you to get involved to try and formulate products for the self-employed

Guy Opperman, pensions and financial inclusion minister

At an event organised by the Association for British Insurers on Thursday, Opperman pushed back at criticism levelled against his party’s freedom and choice policy. He said choice in pensions was “a good thing” but called on the insurance industry to make a bigger effort to demonstrate that.

“I can’t stress enough, you need to make the case and support pension freedoms,” he said.

Opperman verbally slapped insurers on the wrists for slow DC-to-DC transfers and a lack of product innovation for the growing number of self-employed people.

He made it clear the government expects the industry to pull its weight to bring more self-employed into pension saving, saying there has been “a general view among the pensions industry that the self-employed were in the 'too hard to deal with'” group and therefore avoided.

Opperman said: “I urge you to get involved to try and formulate products because it is a growing market, and it seems to be mad to ignore the potential.”

Low levels of 'financial capability' at odds with freedoms

He was keen to stress that since the introduction of the freedoms three years ago, people did not appear to have “squandered” their pension pots, but admitted that to stand a chance at making the freedoms work, a colossal educational effort will be required.

“There is a lot of work still to do,” he said. “We have to accept levels of financial capability across [the] UK remain low.”

He said it was his aim to have the new single financial guidance body in place in the winter before the end of this year. As well as providing guidance, the body will be responsible for developing and coordinating a national strategy for improving financial capability.

The recruitment process for a chair and chief executive of the body is now underway.

Will guidance only be required at retirement?

The single financial guidance body will pull the Money Advice Service, the Pensions Advisory Service and Pension Wise together into one organisation. It is introduced through the financial guidance and claims bill, which had its third reading in the House of Commons on Tuesday.

In its latest version, the bill requires pension scheme trustees and managers to ensure anyone who wants to transfer a pension or start receiving pension benefits is referred to “appropriate pensions guidance”.

Guidance could become 'a new social norm'

At the ABI event, Stephen Lowe, group communications director at insurer Just, backed the idea of default guidance and agreed the pensions knowledge of “middle Britain” left much to be desired.

“We need a bolder transformational step,” he said. “Default guidance could perhaps be part of the answer.”

He suggested that “from age 50 we would work really hard together to get more people into guidance, perhaps even combined with a mid-life MOT”, adding that the guidance would include an opt out.

“The idea is over time we would create a new social norm where people take guidance,” said Lowe.

He said in practice it could work via a “token”, which would demonstrate that customers approaching a provider have had impartial guidance.

But Martin Rumsey, director, wealth and asset management, at consulting firm KPMG, criticised the process envisioned by Lowe, predicting volume challenges for the new guidance body. He said it would also have the effect of changing a soft compulsion for guidance into a mandatory requirement.

Review pensions while there is time to fix them

For Rumsey, however, a more pressing issue is the inadequate size of pots under auto-enrolment.

“It doesn’t matter how good the guidance is, if you don’t have enough you don’t have enough,” he said, noting that the industry should focus its efforts on solving this problem first.

Addressing people's finances when they still stand a chance to improve them was recommended by John Cridland in 2017, and by the Work and Pensions Committee in its recent pension freedoms report.

In a paper released on Thursday, the ABI included the creation of a mid-life MOT in a five-point plan to improve the retirement market; it requested that the industry should be involved in the design of such a review.

Opperman is in favour of making people undergo a financial ‘mid-life MOT’, calling it “something I am absolutely championing, I cannot stress enough that this is the way forward”.