A former pensions minister says less than 10% of savers are taking advantage of the free advice available on safely investing their money.
Ministers have admitted the take-up rate for the Pension Wise service is inadequate and say they want to increase engagement but according to Baroness Ros Altmann have only considered giving ‘a stronger nudge’ to try to persuade savers to get involved.
Charles Randell, chair of the Financial Conduct Authority (FCA) has said that savers making poor pension choices were ‘probably the issue I worry about most of all’ and added ‘the safeguards need to be as strong as they humanly can be’.
The Pension Wise service was established in 2015 after the government allowed savers aged 55 and over to look after their own pensions and either spend or re-invest the money as they wish.
It offers ‘a guidance guarantee’ to help savers better understand what their options are, cope with the complexities of the system and recognise the risks of unsuitable products.
Baroness Altmann said: “If the government and regulators really mean this, increasing Pension Wise use is the clearest way to start.
However, both have consistently shied away from the most direct route to improvement – automatic arrangement of an appointment.
“Surely this would best achieve the aim of advancing awareness of the service and increasing protection against poor decisions.
“Not so, according to the government, whose latest proposals simply suggest a “stronger nudge”. This despite recent testing of such reforms showing only a small rise in take-up — with around 90 per cent of those eligible still not using Pension Wise.”
She went on to express concerns about the number of people possibly dipping into their pensions to ease the financial difficulties presented by the pandemic.
She said: “Many may be tempted to withdraw funds to meet short-term financial needs without realising the tax implications and loss of future income.
There has also long been a worrying rise in the number of pension scams.
More important than ever
“It is more important than ever to ensure people make the most of their pensions. Without the help of Pension Wise or an expert financial adviser, most are still taking the line of least resistance and using their existing provider’s products without understanding all the options.
“In many cases, they would be best advised to leave their money building up inside their pension. Certainly, they should search for the most suitable products for their needs.
But, without first having free impartial guidance or using a qualified adviser, they remain at risk of a much poorer retirement.”