Consumer Protection for Pensions
26th March 2018
More pension customers will be at risk of scams and losses: 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.
Customers need help to understand complex pension choices: 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.
Free, unbiased, expert guidance is available but many don’t get it: The Government rightly established the new free guidance service to provide just such independent, unbiased free help to the public. The new ‘PensionWise’ guidance service has helped people avoid poor decisions, such as falling for scams, buying over-priced products, over-paying tax, or taking money out and losing the advantages of pensions. However, take-up has been dreadfully low.
Auto-enrolment into free guidance will improve take-up and protect many more customers: That is why 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. Such behavioural nudges would ensure much higher take-up and improve consumer protection. Currently, many customers do not bother or do not realise what the service can do for them and then lose out.
Government is now trying to remove the automatic guidance clause: As the Commons debates the Bill, the Government wants to water down the consumer protection and just require providers to tell people about the guidance, rather than make an appointment for them. Providers already have a duty to ‘signpost’ people to PensionWise, however this is clearly not working as take-up is so low. Unfortunately, providers too often direct their customers to their own telephone ‘helplines’ which cannot and do not provide independent, unbiased help. So most customers, without an Independent Financial Adviser, end up relying on their provider or have no help at all. This is not appropriate.
A shame pension providers have not supported this much-needed change: Unless take-up of the free guidance increases, more people will lose out. For example, 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.
It is in the interests of the industry, as well as consumers, that people have proper help: 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.