Could getting pension providers involved in Pension Wise help solve the service’s problem of low take up?
This is a question that the Money and Pension Service (MaPS) – which manages Pension Wise – is now being encouraged to consider.
The recommendation for reform of Pension Wise’s delivery model was contained in a wider review of MaPS, conducted by Tom McPhail, a well-known, and regarded, industry figure.
A conclusion of the review was that Pension Wise – though an acknowledged success – is expensive and inefficient.
Much of what Pension Wise does – in providing guidance to older savers considering drawing on their pensions – is duplicated by providers in their pre-retirement communications with customers, remarked
the review.
McPhail has recommended that MaPS explore how these duplications can be minimised by allowing commercial providers to get involved in the delivery of Pension Wise guidance, but with the proviso that the service’s strict rules around impartiality are observed.
There are good reasons why MaPS should be wary about opening the door to provider involvement in Pension Wise, a trusted brand currently delivered by wholly independent individuals.
Firstly, a recap on Pension Wise and the key problem it faces. Pension Wise was established in 2015 to help savers navigate their retirement income options after their choices were
greatly expanded by the Pension Freedom reforms of 2014.
Pension Wise provides free and impartial guidance, either face-to-face, or by telephone, to over 50s with defined contribution pensions that have not already been accessed. It has been widely acknowledged as a success in terms of the quality of service and guidance it delivers. The service gets rave reviews from those who use it, who say they feel more confident about navigating their options after a 45-minute appointment.
According to evaluation reports, Pension Wise users report high satisfaction ratings in areas such as the guidance discussions being clear and easy to understand and that their personal circumstances were taken on board during the session. Significantly, savers opting for face-to-face appointments report higher satisfaction levels than those receiving telephone guidance, or getting information from the Pension Wise website.
Core to Pension Wise’s success is its impartiality. When the service was being shaped in 2014, the government resisted calls from commercial providers to be involved, insisting those delivering guidance have no actual, or potential, conflict of interest. This means Pension Wise guiders are able to say things to clients that commercial providers would understandably be uncomfortable doing, such
as exhorting the benefits of shopping around, and considering how charges can erode retirement returns.
Savers who have had Pension Wise appointments are more likely than non-users to look at product charges, ask questions of their current provider, or be on guard against scams. They are also more likely to shop around for deals on the open market, or seek bespoke financial advice.
Pension Wise guidance is actively working to address market problems identified by the FCA’s retirement income market review, chiefly too many savers not shopping around.
A potential problem of opening the door to provider involvement in Pension Wise is the dilution of this impartiality.
Commercial organisations have conflicts of interest. They must foremostly serve their shareholders. This does not sit well with Pension Wise’s focus to arm clients with the knowledge they need to secure the best and most suitable deal for them, which may mean saying goodbye to their existing provider.
The industry has a poor record on doing the right thing by customers, including abiding by regulatory requirements to encourage retiring savers to shop around for annuities.
Low levels of drawdown switching show that the market is still not functioning in a competitive way. Charges are still bamboozling and lack transparency.
Pension Wise’s problem is that not enough people are taking advantage of this great service. This is because they don’t know about it, and its praises are not being sung loudly enough by regulators, and providers who signpost to the service.
The solution to this issue is not to dilute the key strength of the brand, its independence, or change the delivery model so that fewer people have guidance delivered by a human being.
Rather than commercial involvement, MaPS should build on Pension Wise’s strengths, for example by expanding its reach to include on-site appointments in workplaces.
Of course, there are conflicts of interest for the government and MaPS in Pension Wise becoming too popular, as it will drive up costs.
But the industry is already paying the costs of mis-selling scandals through higher levies to compensation schemes, and it is the decent advisers and providers, of which there are many, that get hurt the most.
Let Pension Wise evolve but not at the cost of its key strengths.
