13th February 2015
The guidance being offered to retirees as part of the new pension freedoms could be a washout if figures from insurer Royal London are correct.
From April, over-55s will be given greater access to their defined contribution pension pots and allowed to take the money as cash. Under the freedoms announced by chancellor George Osborne in the last Budget, they will also have access to free guidance that will help steer them towards the right solutions for their retirement. The Pensions Advisory Service (TPAS) will deliver the telephone-based element of the service and the Citizens’ Advice Bureau (CAB) will provide face-to-face advice.
While the freedom and the new Pension Wise service will both be accessible from 7 April, Royal London group chief executive Phil Loney said he is concerned that ‘customers are not ready for the new pension freedoms, which have been thrown into place in an entirely unrealistic timescale’.
While Loney is critical at the speed of reform he is also concerned that retirees will not take up the offer of guidance. Over the past three months Royal London has been signposting retirees to TPAS through ‘wake up packs’, which are sent to those approaching retirement age.
Just 2% of those signposted to TPAS actually contacted the service, which Loney said was ‘surprisingly few’. Of the 3,600 letters sent in the last quarter of 2014, just 71 customers contacted TPAS.
‘I fear that many will make the wrong, often irrecoverable decisions about their retirement and this will result in some very poor outcomes. The simple fact is that many people, perhaps most, have not engaged with pension freedom and lack the basic financial knowledge to take the next steps,’ he said.
Although Pension Wise will be marketed by the government and retirees signposted to the services, Loney was not sure how much difference it would make.
“I remain to be convinced that a new leaflet with a new logo, and a publicity campaign will dramatically improve response rates anytime soon. Meanwhile CAB report that they will only have a very limited capacity for face-to-face guidance in place for April,’ he said.