Jon Greer, head of retirement policy at Quilter, comments on the latest Work and Pensions Select Committee evidence session on accessing pension savings, which discussed reforms to the advice allowance.
Pension freedoms provided people with unprecedented choice in planning their own retirement. For many, navigating their options will be one of the most important financial decisions they make in their life, and this decision could be the difference between a comfortable retirement or struggling to make ends meet.
Navigating pension options is no easy feat, and one which won’t be achieved without access to support, advice and guidance. But we know that too few people receive advice, and too few take up the support on offer from Pension Wise.
It’s clear from the evidence provided to the Work and Pensions Select Committee that more must be done to nudge pension savers to take up guidance, and we support developments to strengthen it, but there remains the question of when the most effective point in the customer process is to nudge people towards guidance. This is likely to have a material impact on guidance usage.
Typically, when people come to access their pension pots – and particularly small pots – in principle they have already got a very set idea of what they want to do with that money and there is a danger they’ll just see a Pension Wise appointment as another hurdle.
If members knew that they were expected to have sought guidance services or financial advice prior to contacting their pension provider for a withdrawal that may start to elicit a change in behaviour that nudging at the point of contacting a provider will not.
Taking up support from a guidance service or financial adviser needs to be the social norm rather than an afterthought.
The Committee also needs to take a good look at the Money Purchase Annual Allowance in the current economic climate. Someone struggling to make ends meet as a result of the pandemic may well be tempted to tap into their pension for a source of income, but may not realise that their money purchase annual allowance will be reduced to £4,000. This effectively punishes people for a loss of earnings as it severely limits their ability to save for retirement in the future.
It’s time this archaic rule was scrapped in favour of a general anti-abuse approach.
