Pensions Guidance and Advice

Nigel Mills Excerpts

Tuesday 1st March 2022 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

I beg to move,

That this House has considered take-up of pensions guidance and advice.

It is a pleasure to serve under your chairmanship, Mrs Cummins. I thank colleagues for turning up after we had a late night last night. We have picked a day when pensions are topical, as we have a tube strike over the very issue that we are talking about.

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

Not my fault.

[Nigel Mills]

It is not the Minister’s fault on this occasion.

I do not think the main topic that I am proposing today is one that divides us. I think we would all accept that the problem is that we have a hugely complex pension system. Most people do not really have any understanding of how it works or what their options are, and far too few end up receiving advice or guidance before taking difficult decisions, having probably saved for 30, 40 or more years. They get to the end point and, sadly, do not always understand what they are doing. The huge risk of that situation is that they make a terrible mistake that they could have avoided, which has a detrimental impact on their retirement and reduces their quality of life in their last few years. The real question is what we can do to improve that situation.

We are not here today to talk about the level of pension saving, which is a hugely important topic but one for a different day. We are talking about what we can do to help people who get to the end of their saving journey to get the outcome that they want—the best outcome that they can have with the money that they have. I am not here to criticise auto-enrolment, which has been a huge success. It has hugely improved the situation for many people in work and at least gives them something to worry about when they get to retirement, whereas that would not have been a problem a decade ago. Millions of people would not even have had a pension pot to be thinking about.

Equally, I am not here to criticise the pension freedoms reforms that took place almost exactly seven years ago, which have been a huge success and are hugely welcome. In its recent report, the Works and Pensions Committee accepted that they should stay in place. However, we have to accept that we have a contradiction between the two systems and that we have chosen a way to get people to save pensions by almost tricking them into it, so that they do not realise. They just get defaulted in and do not have to engage, although we wish they would. At the end of that, we now have a hugely complicated system with lots of choices that people are not prepared for, and we need to find a way to prepare them for that, either at some point in their saving journey or when they get to retirement.

This is a problem that is actually getting worse. Statistics show that fewer people than before have taken advice over the last years, and the problem is getting worse because we have more and more people reaching retirement who will not have any defined benefit pension that can provide the majority of their retirement income. In order to ensure their quality of life in retirement, more and more people will be relying on their defined contribution savings and on the decision they make when they hit the age of 50 and get the chance to take a lump sum. It looks like a hugely attractive way to solve their present financial woes, but they do not realise that it makes their future woes a lot worse, having lost a quarter of what they had, which probably was not enough in the first place.

During the pandemic, a lot more working people over a certain age have now decided that they actually quite like being furloughed and have wondered whether they can eke out their retirement savings over a longer period by using the lump sum and not going back to work. It may be a terribly bad decision that they are making. I think the Government are now waking up to the fact that we have lost hundreds of thousands of people from the workforce who could come back but who would quite like not to do so. I am sure we would all like to be able to afford to retire early, but not if that gives us huge financial problems in later life.

[Matt Rodda (Reading East) (Lab)]

I am grateful for the hon. Gentleman’s comments about the importance of pension savings and for his very serious approach to this issue. Does he agree that there is a contradiction here with what the Prime Minister has said about the growth in employment? He may have been somewhat mistaken and inadvertently given a misleading impression that the number of staff on payrolls has increased, but the overall size of the workforce has dropped, as the hon. Gentleman mentioned.

[Nigel Mills]

Yes, I think that is right: employment has grown, but participation has reduced. I have spent many years arguing about whether people are in fake self-employment—not really self-employed but being made to be, or pretending to be, because their employers are being unscrupulous or trying to get a tax advantage. Shifting people who were not really self-employed into thinking that they are employed is quite a good outcome—it makes the data more reasonable. The hon. Gentleman is right: we have lost hundreds of thousands of people who could still be working. When there is a workforce shortage, any measure that could get people from those cohorts back into work would probably be good for the majority of them and for the economy as a whole.

To return to today’s topic, Her Majesty’s Revenue and Customs data tells us that £45 billion was taken from pension pots in the first six years of the pension freedoms policy. Some 3.7 million defined-contribution pensions were accessed in that period, and over 2 million of those pots were cashed in full. This is not a problem for the future when defined-benefit pensions start to run off. It is a situation we have seen over the first five years of pension freedoms. It is happening now. Hundreds of thousands of people are accessing their pension pots without knowing what they are really trying to do.

It is worth quickly noting that we still have a problem with the data. The data that we have shows pots being accessed, not pots being accessed by individuals. We do not know whether the data shows one individual accessing 15 different pension pots from 15 different jobs, or 15 different individuals accessing one pension pot each. If we are to have a proper understanding of the situation, we need better data, so that we know what people are doing and what outcomes they are facing. We raised that as a Select Committee on multiple occasions, but we still cannot seem to get that data to be gathered.

The reason for asking for this debate—and what I would quite like the Minister to recognise when he wraps up—is that we have a large problem here. I am sure that the Minister does recognise that; he has said so on many occasions. I would also like the Minister to set out a direction of travel for the regulators and industry. We know that the take-up of pension advice and guidance is far too low—I will come on to the data in a little while. The Minister has made some welcome steps, which will come into force in a few months’ time, but even those steps will not fix the problem or take us to anything like the level that we need. I know that we do not like targets or benchmarks, but perhaps the Government could set an aspiration, an indication of what good practice is, or what the level should be. We need to set an aspiration for the regulators as to what the level of take-up of advice and guidance should be, and we need a plan for how we get there. I will talk through a few ideas about how we could bridge that gap.

If Parliament does not set the regulators a target, benchmark or aspiration—call it what you will—they will flounder, flap around and go round in circles. We need to be clear: “Here is where you need to get to, and here is how long you have to get there; if you do not get there, we will have to take some different measures of our own.” We had a problem during the debate on the Pension Schemes Bill last year or the year before. Amendments were tabled that called for various solutions, and the fact that they were not adopted means that people think that Parliament does not actually want them, whereas that is not how parliamentary debates work. We move amendments to float ideas, and we debate them. The fact that they are not voted on does not mean that we did not want them; it just means that we think that there may be other ways to achieve them. I hope that we can send a strong message today.

[Guy Opperman]

I did warn my hon. Friend that I would quote back to him his exact words from debate on the Pension Schemes Bill. His speech on Second Reading genuinely struck me, and to try to beef up the process I revised the specific guidance largely on the back of what he and the Chair of the Select Committee, the right hon. Member for East Ham (Stephen Timms), said. My hon. Friend said:

“I personally would prefer a default guidance appointment, with someone having to sign in blood if they really did not want this free, excellent quality guidance before they could access their money.”—[Official Report, 16 November 2020; Vol. 684, c. 69.]

With respect, that is exactly what the stronger nudge is. We have taken on board the exact comments he made on Second Reading of the Pension Schemes Bill.

[Nigel Mills]

I am grateful to the Minister. He did say that he wanted the take-up of pension guidance to be the norm. Even with his changes, which I welcome, the take-up of Pension Wise will increase from a totally inadequate 14% to a really quite unacceptable 22%. I do not know how he defines a norm. I am not sure if there is a written definition of a norm, but I have a feeling that less than a quarter does not count as a norm. In that speech, which I stand by, I said that before they access their pension pot, I want the clear majority of people who have any level of pension savings to have taken guidance or advice.

However, I do not agree that such advice should be mandatory. We cannot put a gun to people’s heads and say, “You cannot have your money unless you sit through this. If you refuse to do it, no matter how long it takes, we’re not giving you your money.” Clearly, we cannot do that, but we can get pretty close to that situation. We need to find processes, techniques and measures that get that percentage up to somewhere much nearer the norm, so that people are not suffering the harm of doing this without understanding the whole landscape of what they are trying to do.

My big concern is not necessarily that people cannot understand the subject, although it is complicated, but that people do not know that there are all manner of uncertainties out there that they have not thought about. It is the “unknown unknowns” that are the problem here.

The beauty of a pension guidance appointment is that it gives people the chance to understand what they do not know, and then gives them the chance to go and find out what they do want to know so that they can make an informed decision. I am not suggesting that we can fix every problem of engagement through an hour or an hour and a half’s pension guidance appointment, but it would give people the tools to get the best possible outcome in their situation.

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

The hon. Gentleman is making an excellent speech. Further to his point, the need for clear and impartial guidance becomes even more important given the current levels of fraud. We are seeing people defrauded from their pensions and given very poor advice, which means they lose out on their savings, so having clear and impartial advice becomes even more important.

[Nigel Mills]

The hon. Lady is absolutely right. It is a sad fact that a small proportion of people, but all too many individuals, have not just made a decision that is not optimal but been tricked into something that has cost them the whole or nearly the whole of what they have saved during their working life, because they did not understand that what they were being promised by the snake oil salesman—the conman—was utterly unachievable.

With some kind of briefing or guidance, they would have had a chance to realise that such an outcome was not possible, that there was no way they would get that kind of return and that such an investment strategy was not remotely sensible. We could have saved them in that situation. We must try to get as many people as possible to take up this service, so that we can put such protections in place and people will have a chance to know that such schemes are not real.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

I agree completely with what the hon. Gentleman says. I know I have probably used words that he maybe would not, but does he share my concern about the Minister’s intervention? The Minister effectively said, “I listened to the hon. Member’s speech. We are doing a stronger nudge—job done; nothing to worry about.” Is that not complacent?

[Nigel Mills]

I would not use that word. It is a little unfair on the Minister, who has put in place some measures that have not yet come into force, to say that he is being complacent. I urge the Government to see those measures as part of the set of solutions we need.

The Government’s role is to set the aspiration for the level of take-up that we need, so we can then judge the success of their policies. It is a slightly strange situation and we had some rather baffling evidence sessions with the regulators during the recent Work and Pensions Committee inquiry. Everybody accepts that the take-up is not high enough and we should do more, but when asked, “What ought take-up to be?” they say that they do not know and do not have a number. So we know that what we have now is not good enough, but we do not know what is good enough, and therefore we cannot tell when we are going to get to good enough.

It is a slightly strange way of running a strategy, an organisation or a service to not know what is good and what you are aiming for, but to start trying to aim for it in the hope that you might get there by luck. We need a direction of travel, and someone to say, “We think the right target is 60%.” That is the number we had in our Select Committee finding and it seems quite reasonable. We are not asking for 100%, which would not be practical or useful, but we could set that kind of guide.

[Guy Opperman]

My hon. Friend is talking about guidance on its own, but 55% of pots over £10,000 are accessed after taking guidance or advice, and above £100,000 the figure is 74%. Surely on those two, the stats are better, with respect, than he is purporting to suggest, and we must look at this in the context of some people taking advice as well.

[Nigel Mills]

Absolutely. We hope that more people will take advice and have a properly informed situation, rather than just relying on guidance, and I accept that we want to look at those two things in aggregate. The problem on the numbers the Minister is quoting is that there is still a huge gap in respect of the, I think, 45% of people who have not had advice or guidance. My fear is that they are the people about whom we are most concerned: those with some retirement savings—not a huge amount, although not a very small amount—for whom, if they do not make the right decision and understand all the parameters they are dealing with, there could be a material impact on their retirement.

Should we worry so much about those with a £1 million pension pot? They are probably the ones who are taking advice in the first place. For people who have really a very small amount, there is probably not much that they will be able to do differently after they have had the guidance than take it as a lump sum. Are we to think it is okay that we have 45% of people who in the scheme of things have a relatively small amount and who could, by getting this wrong, materially harm their retirement, and that we do not have a plan for how to close that gap? I am not sure that that is a position I would want to take.

This shows that we have a problem here, and we need to find ways to try to fix it. The Minister is getting defensive, but I hope that when he speaks later he will accept that we need to close that gap and that the measures that will come into force in a few months will not be sufficient to close it. We need to look at different ways—

[Guy Opperman]

I am not being defensive; it is just that I do not think that we can look at this matter solely in the context of stronger nudge. We have to look at it in the context of, obviously, the work done with the pension schemes legislation, with the dashboard coming next year; the accumulation pathway, with collective defined contributions coming in; the awareness campaigns, which we are beginning to boost; simpler statements and so much more. Stronger nudge is just one element of about six to eight measures that we are taking to address the problem that my hon. Friend raises, and I accept that he is right to raise it.

[Nigel Mills]

I am grateful to the Minister. There is a danger, or there will be if we are not careful, of us starting to disagree on the fundamentals, whereas I thought we had a broad consensus of agreement that we needed to find a way to go further on the issue. Sir Hector Sants chairs the Money and Pensions Service, whose job it is to deliver financial advice and support to people around the country, and even he agrees. Sir Hector said that

“the vast majority of people, left to their own devices, will probably make a poor decision.”

The problem we have is that a large number of people—unless we are able to convince them to take some kind of guidance or input—are at risk of making a very poor decision that they will not be able to reverse. This is not like taking out the wrong mortgage, which people can change after two years. If people take out the wrong pension, they are stuck with it for the rest of their life. It is not fixable if someone has bought the wrong product.

I accept that all manner of other moving fields around the pension situation all have to come together, but if the Minister was saying—I am sure he was not—that the combination of a slightly-easier-to-read statement that gets sent out once a year, and which might or might not get sent out at the same point and that has some advantages, and the creation of a dashboard, which we hope people will engage with and look at regularly, will fix the fundamental problem of our having a pensions system that is hugely complicated and that people do not engage with or understand, even though they will have to make a difficult decision at some point, I am not that optimistic that we will get such a level of engagement through people’s saving journey that they will not need some input before they make their decision.

When we introduced these freedoms—I was on the Select Committee seven or eight years ago—we said yes to providing those freedoms, but the big ask was, “Are we going to help people on that journey?” I am perhaps a little disappointed that the solution that the then Government came up with was the Pension Wise service. At that point, the Government and the regulators expected huge take-up, and we were worried about the service being swamped and unable to cope, but we have found that Pension Wise has exceeded all expectations—except one. The feedback from people who use the scheme is hugely positive, as is its impact on their understanding of the pension landscape and on the decisions they go on to make. The one expectation it has not met has to do with take-up, which is nothing like what it was. In evidence sessions on pension schemes, people were saying that we might get 75% take-up, but we are stuck in the low teens, and the figure has been falling in recent years.

It is slightly incongruous: we introduced a policy of pension freedoms, recognised at the time that the situation would be difficult for people, and put in place a new guidance system to help them. We thought there would be huge take-up, and said that its use should be the norm. A few years on, the position has got worse, and we have more people retiring with only DC pensions—people who need this input. We have this huge gap in take-up, but think that is probably okay, because there are a few things online that people can find. That is a challenge. We need a sense of urgency and direction, so that we can hold the regulators to account for achievement.

I am grateful to all who helped me prepare for this debate and sent me useful briefings, particularly the House of Commons Chamber Engagement Team, which conducted an online survey of people’s lived experience. That chimed with what we see in our constituency casework and in evidence to the Select Committees. It is clear that people do not understand the situation and do not feel well informed during their saving journey, and then have problems over time.

One quote is from Charlotte:

“Guidance and advice is not provided in my workplace, unless you are almost at retirement age, which is way too late.”

Carole said:

“I have tried researching the information online but I find it very confusing.”

Anne, a constituent of mine, said:

“The Government should arrange pension roadshows to assist people with enquiries etc. Employers should hold pension surgeries and ensure guidance is available. There isn’t enough signposting and guidance in place.”

The evidence is pretty clear: there is a gap, and we need to fix that. What are the solutions? The Minister dragged me into talking about solutions earlier than I had planned; I was articulating the problem. Data on the size of the problem shows that HMRC received about £2 billion more than forecast in the early years of pension freedom as a result of people accessing their pensions. That is likely because people took the whole of their pension, as they now can, and became higher-rate taxpayers for the only time in their working life. That was a hugely foolish decision, giving the taxman 20% of their pension. That would not have happened if the pension had been taken out in a smooth way over years.

I am sure the Government do not want that benefit, but that £2 billion was a third more than was forecast. That suggests that something has gone wrong, and that people have not been making the wisest decisions. A Nobel- prize-winning economist has described working out what to do with a pension as

“the nastiest, hardest problem in finance”.

Nobody knows how long they will live, and many people assume they will live fewer years than they do, and end up with the horrible risk of running out of money.

I will move on to the argument the Minister was keen for us to have about how to improve the take-up of Pension Wise advice, and issuing appointments automatically or by default. I am asking for what the Select Committee asked for in its recent report: for the regulator to undertake trials on how to improve the take-up of pension guidance. We are not asking for tens of hundreds and thousands more appointments, and huge costs. We accept that, even with a stronger nudge, we will not get the figure high enough. We could give people an even stronger nudge and look at some of the options. Those include writing to people when they turn 50 or are approaching state pension age to say, “We have made you an appointment with Pension Wise at half-past three on such a date,” and giving them the chance to change the appointment. Or we could go back one step and say, “In six months’ time, you’ll hit state pension age. Before you can access your pension, you need a Pension Wise appointment. Here is the booking number.” There could be other combinations; for example, the pension provider could make planned appointments.

Whatever the trials and the options we look at, we are trying to work out whether giving people an appointment —a real kick—increases take-up, especially in the hard-to-reach groups that are not using the guidance service. I would have thought there were enough good-quality pension schemes out there that are keen to help their members and that would be willing to participate in a trial with the regulator, who could agree the rules and set the parameters. We could do that for a few thousand people on a representative basis.

[Emma Hardy]

The Treasury Committee got a letter on 16 February from the Financial Conduct Authority about the trials and how they have been designed. I wonder if the hon. Member shares my disappointment that it said,

“We are still in a design phase and have not yet determined all these details. Some of the answers to your questions will depend on further work.”

It does not feel as though there is a sense of urgency about the issue.

[Nigel Mills]

I agree. We had the regulator before the Select Committee, and initially she was quite resistant to do anything beyond giving the stronger nudge that the Minister had provided for, because she did not think Parliament wanted that. We should send the message loud and clear that we want to trial these things and see if they result in higher take-up. None of us would want people at Pension Wise to be sitting around at the end of the phone, waiting for calls, which are not coming in huge numbers, if they were providing something that people really do not want; but people who take these appointments value them, and find them useful. There are all manner of ways that call centres around the country handle unpredictable volume. They know what the take-up will be, and then plan everything with their staff; they move calls around so that they can handle surges in volume, or manage dips in take-up.

I am not saying to the Minister, “Bring in legislation to require a pension guidance appointment for every single saver approaching retirement. Resource Pension Wise to provide that that. Hey, if no-one turns up, it’s just money being lost.” But let us trial things that go beyond what he has already agreed to do, so that we get the take-up we all think we need. If people are not turning up, we will accept that it does not work. If people are turning up totally unengaged, and are there just because they think they have to be and have not bothered to do any research on their own finances, and it is a completely pointless conversation, we will accept that the automatic appointment system does not work. However, if we find, as I suspect we will, that it boosts take-up among the harder-to-reach people, let us roll it out more widely, because we can demonstrate the value of it. If we do not trial any of these things, we will be sitting here in a few years’ time with more people having suffered detriment, and we will be scrabbling around for ideas. We will not have the evidence, because we will not have trialled anything. That is all I am asking the Minister to do.

Another idea we have for improving the outcome is moving the line when it comes to what is advice and guidance, and giving better guidance to the pension schemes about what they can tell their members—what common-sense information they can give people about their options. I am slightly cautious on the latter point, because one of the arguments in favour of pension freedoms, and one of the big problems with the annuity market, was that savers were just defaulting into buying the annuity from their incumbent pension provider, and were not shopping around and understanding their position. They could have got a far better outcome if they bought an ill health annuity, or if they went to a different provider. I do not think we can say that the solution to this problem is for an incumbent pension scheme to tell members what four default pathways they have, and to see which one they want to pick.

Some kind of independent, impartial input should be available to savers, so that they know they can shop around and look elsewhere. The place that is the main contact with the saver should be able to give them useful information, and should be required to give them more useful information than they already do. We should find a way for the regulators to move the line, change the guidance or give some examples to schemes, or give schemes reassurance that they are not breaking the financial advice regulatory rules when giving people what is basically common-sense advice. That would be hugely helpful. If we can, we should reform the system—that is the best way I can put it—so that people do not have to incur the full cost of regulatory advice, which is usually thousands of pounds, and so that we can give people more tailored, individualised guidance on the best option for them. That would be a huge advantage.

It is clear that simple Pension Wise guidance is not the journey’s end that people want. They want something individualised. We need to find a way of making that easier and cheaper for them to get, while keeping it safe; we do not want people being led into buying a product by what they thought was impartial guidance. Making those improvements could give us a dramatic improvement in the situation.

I have spoken for longer than I was expecting to, so I will conclude my remarks by reiterating that I do not think that this issue divides us. We all recognise that we have a problem. We welcome the measures the Government have taken to improve the situation, but I urge the Minister to accept that he needs to go further. We need the regulators to take more action. I urge them to take up the relatively straightforward and low-cost trial options that are out there, so that we can see if we can get a better outcome, and can get more people using a high-quality, free, low-risk guidance service. There is literally no downside to people using it; it is a crying shame that it is not used more. That is all we want to see from this debate.

[Hannah Bardell in the Chair]

--- Later in debate ---

[Nigel Mills]

I am grateful to the Minister and to all colleagues who have taken part in the debate. It is regrettable that we did not quite give the Minister a strong enough nudge to convince him to make a change to the Government’s position at this stage. We will keep a watching eye on that and come back to it, because even with the stronger nudge starting in 93 days, as the Minister said, we know that will not get us to where we want to be.

Hundreds of thousands of people will still make this life-changing decision without the information they need, and without even knowing that they do not have the information that they need. That is not a situation that we want to see and it will inevitably lead to some people suffering detriment that they could dodge with the free, relatively quick and completely painless high-quality guidance service that is out there—a system that we put in place and wanted to become the norm. We wanted high take-up and we have not got there yet.

I recognise that there has been progress and I am sure we will see some progress as the new rules come in from 1 June. I hope that they solve the problem and that it goes away, but I fear it will not and I look forward to the next time we are here debating the issue. Hopefully, we can then make some further progress that we did not quite get to today.

Question put and agreed to.

Resolved,

That this House has considered take-up of pensions guidance and advice.