Pension customers will be more likely to be exposed to scams, fraud and poor value products and will pay excess tax because of Government’s changes to the Finance Bill that water down access to guidance, critics say.
Former minister Ros Altmann has slammed the Government for ‘bowing to industry pressure’ by amending the Finance Bill to replace an obligation to require providers to automatically enrol customers accessing freedoms into guidance with an obligation to merely signpost them to it.
But investment and pensions platform AJ Bell has defended the move, saying automatically enrolling customers into guidance was an unproven strategy for improving outcomes.
The move comes days after the Pensions Regulator won a £13.7m victory in the High Court against a team of scammers who had ripped off more than 200
victims of a pension liberation scam.
A cross-party group of peers introduced an amendment to the Financial Guidance and Claims Bill designed to ensure pension customers would automatically receive a free guidance appointment if they were thinking of transferring money out of their pension. As with auto-enrolment into pension saving, they could opt-out or change the appointment. Supporters of the move argued that such behavioural nudges would ensure much higher take-up and improve consumer protection.
Altmann says: I am really disappointed that the Government seems to have bowed to industry pressure and proposes to weaken consumer protection for pension customers. By removing a clause introduced in the House of Lords, designed to protect consumers’ pensions better, more people are at risk of losing their hard-earned savings in scams, frauds and unwise pension withdrawals.
“The new pension freedoms are a great step forward, but cannot work properly if customers do not understand the vital issues they need to know before deciding to take money out of their pensions or transfer to new schemes.
“PensionWise has stopped people falling for scam schemes, especially after they were caught by cold callers, and has helped customers avoid buying expensive products or paying tax unnecessarily. Providers clearly have a vested interest in selling only their own products – even if they are more expensive or less suitable than others in the market.
“Of course it might be bothersome for providers to have to automatically make an appointment for customers who want to transfer money out of their pension, and maybe they are concerned that the costs of the free national guidance service – which they fund – would increase as more people take advantage of it, but surely that is a small price to pay for better customer protection. They will have a chance to speak to an unbiased expert who can alert them to avoid scams and free, independent help to understand the costs and risks of pension decisions.”
AJ Bell senior analyst Tom Selby says: “The original ‘auto guidance’ amendment was a bit of a dog’s breakfast. Automatically enrolling members into guidance for each transfer or every time they took money from their own pension pot – when they have already decided what they want to do – would have caused massive delays and huge complaints.
“Furthermore, it was by no means clear that it would have a material impact on the take-up of guidance. It therefore risked being both infuriating to customers and ineffective.
“The new amendment is a vast improvement and in the short-term should help increase awareness of the importance and value of advice and guidance. It also gives the FCA breathing room to consult on alternative nudges towards guidance that have been shown by research to be effective.”
