Work and Pensions Committee inquiry on guidance and advice

Transcription

1 Work and Pensions Committee inquiry on guidance and advice Response from the Money Advice Service August

2 1. The Money Advice Service is pleased to have the opportunity to submit evidence to the Committee s inquiry. The Money Advice Service is a UK-wide, independent service set up by government to improve people s financial well-being. Our free and impartial money advice is available online and by phone, web-chat or face to face with one of our Money Advisers. We also work with the debt advice sector to fund and to improve the quality, consistency and availability of debt advice. 2. We help people across a range of everyday money management issues at all life stages like buying a house, having a baby, preparing for retirement to dealing with bereavement. In 2014/15, we were contacted 21 million times by our customers and helped them to take action 9.2 million times. 3. Our core statutory objectives, as set out in the Financial Services Act 2010, are to enhance the understanding and knowledge of members of the public about financial matters (including the UK financial system) and to enhance the ability of members of the public to manage their own financial affairs. We work closely with others to achieve this. The Money Advice Service is paid for by a statutory levy on the financial services industry, raised through the Financial Conduct Authority. 4. We are submitting evidence in light of our statutory objectives and our wider role to ensure that consumers are well informed and empowered to take action across the existing and emerging retail financial services marketplace. 5. Our written evidence focuses on the insights on consumer behaviour and knowledge gained from the development of our own retirement services, and analysis of the use our own services and information. Our retirement offering 6. Our retirement offering was developed to complement and enhance the Pension Wise service. It consists of a variety of over 60 on-line guides, tools and printed material to support people in making informed decisions about their retirement savings and managing their money throughout their lives. We take a consumer centred approach by extensively testing our tools and information with real people. In advance of the introduction of the new pension freedoms in April 2015, we invested in enhancing our existing retirement offering and producing a range of new tools aimed at assisting consumers to negotiate the decision making process under the new freedoms. Key among the new tools were the Retirement Adviser Directory which is the only single directory of financial advisers that provide at or post retirement regulated advice and a whole of market and impartial annuities comparison table. Our range of retirement resources is set out at Annex A. 7. We work closely with the Department for Work and Pensions, The Pensions Advisory Service (TPAS), HM Treasury, HM Revenue and Customs, Financial Conduct Authority (FCA), The Pensions Regulator (TPR), Association of British Insurers (ABI) and other industry partners 2

3 across the development of our information and tools. We also helped HM Treasury build the Pension Wise digital service. 8. The Pension Wise services are required to direct customers who wish to take or who may need regulated advice to our Retirement Adviser Directory and to our Annuities comparison table to help with shopping around for an annuity. Our printed retirement guide, Your Pension: it s time to choose, is sent out by providers and scheme trustees to people who are within six months of the retirement date set for their defined contribution pension. Take up of our services 9. The pension reforms have the potential to bring about a significant cultural shift in the way individuals make decisions for their retirement and manage their retirement savings throughout later life. The introduction of the reforms has heightened public awareness of an interest in retirement issues, and this has been reflected in increased usage of our retirement content and tools. 10. Our research 1 shows that people over the age of 55 who are thinking about retirement are overwhelmed by the decisions that need to be made. Even those who are confident about the logistics of organising their finances (the more financially confident) are still concerned about the actual returns and making the most of their money. 11. Many people admit they have only got as far as roughly working out that they can afford to retire, and even those consumers who are relatively confident often later acknowledge they did not realise all they need to take into consideration, such as tax and the impact of retiring early or deferring retirement. 12. The Money Advice Service believes it is important that the services available to those approaching retirement should recognise that people start their journeys at different points and have a variety of learning styles affecting how take on board confusing and often inherently complex information. It is important to cater for the differences while maintaining consistency of terminology and language across different mediums. In developing our own retirement resources, we have sought to take account of this variation on customer journeys to assist customers to consider in the round all the options which may be relevant to them. Our retirement resources are presented through a variety of mediums including videos, infographics, tools and content. 13. We launched all of our new retirement assets by the 2 nd April Table 1 highlights our top 10 guides. Most consumers want to understand the options for using their pension pot in light of the reforms. Table 2 highlights the usage of our key retirement tools. 1 We conducted a series of research programmes across the development of our retirement proposition consisting of eight focus groups with eight people per group, and 16 depth interviews of people aged 55 plus who were considering retirement or reducing working hours in the next two years. We then tested individual resources with over 70 people in depth interviews. 3

4 Table 1: Top 10 on line guides 2 nd April 19 th Aug 2015 Options for using your pension pot Pension release or pension unlocking Equity release Lifetime allowance for pension savings Pensions for the self-employed Defined contribution pension schemes State Pension Self-invested personal pensions Personal pensions Defined benefit schemes Table 2: Unique visitors 2 nd April 19 th Aug 2015 Tool Unique visitors Retirement income options tool 18,476 Retirement adviser directory 28,483 Annuities comparison table 66,020 Pension calculator 180, Our call centre and face to face sessions help people with general queries about pensions and retirement and make referrals to Pension Wise and the Pensions Advisory Service when appropriate. Queries on pensions and retirement have increased significantly since the Budget 2014 announcement, and now comprise more than 15% of all offline enquiries. 15. From the period of January to June 2015, the table below outlines the top 10 questions that are most frequently asked. Table 3: Most frequently asked questions Advice about my pension what should I do? Information about the new pension rules What are my retirement income options? Advice about taking tax free lump sum How do I find an IFA to help me with pension issues? How much tax will I pay on my pension? Advice about transferring my pension in order to access the funds Advice about cashing in small pension pot Advice about annuities Can I sell my annuity to release the funds? 16. Our Money Advice Service telephone advisers also highlighted some other issues that consumers are facing in their guidance and advice journeys. 4

5 Accessing financial advice 17. More specifically, our telephony advisers have reported high volumes of calls where individuals have been told by their pension provider that they must seek financial advice before transferring. This appears to be happening even when the rules do not insist that advice is needed i.e. defined contribution pensions without a guaranteed annuity rate (GAR) or other protected benefit and defined benefit pensions under 30,000. One person with a DB pension pot of 164 was told she needed to seek regulated financial advice. 18. A number of our advisers also reported customers who had been told by their pension provider that financial advice has been taken from the wrong type of adviser i.e. one without the right qualifications to deal with their specific issue. 19. To tackle this issue, we have created, along with input from the FCA, advice flow chart to help advisers and consumers understand when financial advice is necessary and what qualifications an adviser needs to give that type of advice. Pension Wise 20. There is some evidence of confusion among consumers and how to access the different guidance services. Many Money Advice Service telephone advisers report receiving calls from individuals who think they have accessed the Pension Wise service. Advisers are often part way through the calls when it becomes clear that callers think they are having their Pension Wise session. The callers are then referred to Pension Wise to book their session. The main source of the confusion is from people who have received the co-branded printed guide: Your Pension: it s time to choose. At the time of submitting this evidence, we are updating the guide to help minimise customer confusion. 5

6 Opportunities for improvement 21. Following the introduction of the reforms and limited information available regarding consumer behaviour and the take up of guidance services, it is too early to reach a clear judgement on how well the regime is operating and which areas may require further improvement. The joint HM Treasury/ FCA Financial Advice Market Review, and the Treasury s parallel review of the statutory guidance landscape, though not limited to pension and retirement issues, clearly has the potential to increase the availability of, demand for, and coherence of regulated and non-regulated advice and guidance to aid those approaching retirement make the best choice for their circumstances. Below we set out briefly areas where there is a need for continued improvement. Consistency of language 22. The language and jargon used in the retirement sector make the market difficult for consumers to navigate. Unilateral efforts to simplify language are unlikely to assist consumers, and collaboration is required to make relatively complex products and processes easier to understand for all consumers. The Department of Work and Pensions 2 and NEST 3 created language guides to support consumer understanding for the introduction of automatic enrolment. The ABI is also starting a cross sector group to build on the work of DWP and NEST in light of the new pension freedoms. 23. The FCA, following its Retirement Income Market Study is testing ways to improve the framing of consumer information to help them make decisions about their retirement income and the type of information they receive in the run up to their retirement The Money Advice Services believes all of these initiatives need to be coordinated effectively to reach consumers and improve their retirement journey. We will continue to seek to improve the quality, accessibility, and consistency of our own consumer information. 25. The Money Advice Service has undertaken extensive user testing to inform the content of its own retirement resources; we believe that in reaching consistent language and improved advice journeys, robust assessment of consumer needs and preferences, and testing of the effectiveness of different communications tools, etc. will be central to advancing consumers interests. Value of guidance and financial advice 26. People need to understand the value of taking up a guidance session and engaging with regulated advice. We are providing better links between guidance and regulated advice through our Retirement Adviser Directory and printed and online guidance. The value of accessing both types of services needs to be encouraged and their benefits made clear so people will want to draw on the guidance and advice available. 27. We are also working on greater transparency of financial advice fees. One of the ways to build up value and trust is for consumers to understand how much they will pay for advice. There are myths that all 2 DWP, Automatic enrolment and pensions language guide, NEST, Phrasebook, 2011, 4 FCA, Retirement income market study: final report confirmed findings and remedies, 6

7 financial advice is a minimum of 1,000. Our directory highlights the minimum fee charged by firms to help change consumer understanding. In addition to highlighting the newer telephone and online advice models that are emerging in the industry. These models are targeted at the mass middle income market that can deliver financial advice at a reasonable price. 28. We continue to work with the financial advice industry to raise awareness and need for regulated advice. Customer journey 29. To help people access guidance and advice to make informed decisions for their retirement, it is important to reduce the number of steps and perceived barriers that may be encountered along the way. It is also imperative to agree on consistent messaging and sign posts between government, regulators, guidance organisations and industry to minimise customer confusion. 30. The high profile nature of the pension reforms, including widespread media coverage and extensive efforts by government to raise awareness of the Pension Wise service, has increased interest in accessing guidance. The Money Advice Service believes that there is now a need to ensure that customer journeys to access such guidance are as clear as possible. We will continue to work closely with DWP, HMT, TPAS, ABI and others to improve the customer journey to make it easier for people to access for information and guidance needed. 31. We note that HM Treasury s recently announced review of the statutory landscape for the provision of financial guidance, alongside the wider-ranging Financial Advice Market Review to be conducted jointly with the Financial Conduct Authority, has the potential to bring greater clarity to such journeys. 7

8 Annex A Money Advice Service retirement resources Retirement income options tool This tool helps people explore the key considerations as you approach retirement, compare options, and get guidance on the next steps. It provides a mental model of how people need to think about their retirement decisions and all of the factors that impact these decisions like other sources of retirement income, tax, health and longevity, inflation and risk, and inheritance. It guides the user to a series of next steps which include taking up a Pension Wise session. Retirement Adviser Directory The retirement adviser directory matches financial advisers working the in the retirement planning market with people who need financial advice. The directory is the financial advice hand off for Pension Wise and acts as a bridge for consumers from guidance to regulated financial advice. The Service works closely with the financial advice community to develop a directory that works for both consumers and advisers. At the time of submission, the Directory includes around 6,000 advisers from around 3,400 firms. Work continues to improve the functionality of the directory, ensuring that advisers are able to showcase their services to potential customers in more depth and to refine the search results to best meet customer needs. Annuities comparison table The annuities comparison table represents an educational journey to help people understand their choices for a basic annuity. It uses video and a step-by step journey to outline the types of annuity features to choose such as guarantee period, joint or single annuity, inflation protected, and a variety of health questions. A series of quotes from different providers are given at the end of the question set. The user is able to run multiple quotes and compare the quotes side by side. Pension Wise hand off to both the retirement adviser directory and the annuities comparison table from the Pension Wise website and via the output that each customer receives after completing a Pension Wise session. Pension Calculator The pension calculator gives the user an estimate of retirement income based on the Pension Commission s replacement rates. It includes estimating growth based on pot size and contributions for defined contribution schemes, estimates basic State Pension, and allows the user to enter any income from defined benefit schemes and other income. It is useful for people who want to see the impact of leaving their pots grow for longer rather withdrawing the money for retirement. 8

9 Online guides This useful section outlines all of the tools and guides along with learning videos to help people navigate their retirement decisions. When we conducted user testing, people wanted a central hub to navigate from which partially guides a user to think about what they need to do for retirement but also presents information in a thematic way like types of pensions, retirement income product. Printed guide: Your Pension: it s time to choose This guide gets sent out to people who are within six months of the retirement date set for their pension pot. The guide outlines the various options for their pension pot, how to prepare for a Pension Wise session, how to spot pension scams and useful contacts. The guide is mandated by the Financial Conduct Authority conduct of business rules. Since April 2015, the guide is co-branded with Pension Wise. Videos Throughout our online guides and tools, we present a variety of videos to impart retirement topics in another way to cater for the different ways people take on board information. The videos range from topics like the regulated advice, single vs joint annuities, retirement income options presented by an expert to customer led videos that detail their experiences when buying an annuity, preparing for retirement or taking financial advice. 9

10 Jackie Spencer, Pensions and Retirement Proposition Manager Tel: Published: August 2015 The Money Advice Service 120 Holborn London EC1N 2TD 10

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