From age 50 people considering accessing pension money should be automatically enrolled into a free Pension Wise guidance session, according to new research from Just that highlights the policy inconsistency between enforced mortgage advice and the pension free-for-all.
With the success of pension 'freedom and choice' now under scrutiny by the House of Commons Work and Pensions Committee, the research highlights broad support for the creation of a default pathway into guidance or advice for pension savers considering taking benefits.
Specialist financial services company Just said the report - Lighting pension pathways: guiding pension savers through 'freedom and choice' - reinforces the case for new rules that aim to make taking pension guidance the social norm.
Currently only about one in 10 people accessing pension money use the government's free pension guidance service, Pension Wise, while almost all mortgage borrowers are required to take advice. This is despite people knowing more about mortgages and being more confident making mortgage decisions than they are for pensions.
Only four in 10 felt pensions were easy to understand, compared to nearly two-thirds (63%) for mortgages. Nearly seven In 10 (68%) said they were confident making mortgage decisions compared to just over half (52%) making pension decisions. Almost double the number (23%) said they were not very confident making pension decisions, compared to mortgage decisions (12%).
Given greater uncertainty around pensions than mortgages it is a "glaring contradiction" that mortgage borrowers are required by law to take professional advice but pension savers are left to sort out their own support or advice said Stephen Lowe, group communications director at Just.
"We know that support does work because people who took guidance or advice reported higher than average levels of confidence when making either mortgage or pension decisions," he said.
"Three-quarters of those questioned supported making pension guidance or advice a requirement, a figure rising to nearly nine in 10 of those who had themselves used Pension Wise.
"As noted recently in a House of Lords debate on reforming financial guidance, Pension Wise is working exceptionally well but only for the very small number of people who use it. Providing a default pathway into guidance will encourage far higher levels of engagement."
He said the research suggested those with smaller pension pots, who expressed the lowest levels of knowledge of pensions and confidence in making decisions, have the most to gain from making guidance a natural part of accessing pension benefits.
Just believes that receiving pension guidance before accessing benefits should become a social norm and is making three key recommendations:
• Increase awareness of the value of Pension Wise guidance – to address widespread ignorance of what it is and who it can help
• Start communications to engage with guidance from age 50 – to give time to reflect on guidance provided in advance of being able to access pension benefits
• Automatic enrolment into pensions guidance – this needs to be built into provider sales processes to encourage high levels of engagement and discourage opt outs
"The government has given people more freedom and choice and must now ensure they help people to mitigate far more effectively the risk they are exposed to by making guidance a social norm," said Stephen Lowe.
"Many peope have worked and saved hard for 40 years or more to build up their pension pots. Expecting them to accept a 40 minute guidance session, helping them decide how to make their savings work hard for what could be anotherr 40 years, feels a wholly appropriate and proportionate policy response."
Lighting Pension Pathways: Guiding pension savers through ‘freedom and choice’
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