MPs demand action to avoid pensions mis-selling scandal
Pensions could become the next mis-selling scandal if stronger support is not offered to consumers taking up the new retirement freedoms, MPs have warned.
The Work and Pensions Committee said that the freedom introduced in April is "not yet operating entirely as it should" - and a lack of clarity is "endangering pension savers".
It said: "To not provide the basis for a well-informed choice could lead to the next major pensions mis-selling scandal".
Improvements to guidance and advice are crucial to the success of the policy, the committee said. It urged the Government to do more to highlight the dangers of pension scams to consumers.
The new freedoms give people aged 55 and over greater choice on how they use their pension pot. Generally, the first 25% of the pot is tax-free and the remainder is subject to tax.
A free guidance service - Pension Wise - was introduced alongside the reforms. The service offers a one-off 45-minute guidance session in person or over the telephone, as well as offering information online.
The committee said Pension Wise was created to fill a potentially dangerous gap in support for consumers, including many people who are unable or unwilling to pay for independent financial advice.
But it described the Pension Wise website as "not fit for purpose", adding: "It is static, offering no opportunities for personalisation, and lags well behind many private services."
It said this is particularly concerning given that the website is the main guidance channel for many consumers.
As a "matter of urgency", the Government should ensure the website provides a calculator so people can work out what their income might be, as well as examples tailored to people's individual circumstances, it said.
Consideration should also be given to the possibility of offering customers two or more Pension Wise guidance sessions rather than just one, MPs said.
The committee also raised concerns about " the near complete lack of data about Pension Wise".
It said: "The Government's reticence in publishing statistics on the effects of its pension freedom policy, a full six months after the reforms, is unacceptable."
Frank Field, chairman of the committee, said: "These reforms have been in operation for six months now: it is evident that that has been long enough for the scammers to get going, working on defrauding people out of their life savings - it should be long enough for Government to have published some data about how the reforms and the attendant guidance and advice are working."
He continued: "We have seen all too clearly, too many times, what happens when financial information is not properly provided and regulated. We literally cannot afford another financial mis-selling scandal."
The committee recommended that statistics on Pension Wise and the advice and pensions markets should be published every three months.
It said this would also help to "provide some assurance that another mis-selling scandal is not on the horizon".
The committee said that while the Government and the Financial Conduct Authority (FCA) are taking the right approach over scams, more could be done to highlight the dangers.
While there has been "mixed evidence" on whether rates of scamming have increased in practice, it can be years before someone realises that they have been the victim of a scam, the report said, adding that it appears so far that consumers have largely taken sensible decisions with their savings.
The report is also calling for a reduction in the use of jargon and complex pricing structures for savers trying to withdraw funds and stronger signposting to the Pension Wise service by pension providers.
Richard Graham, member of the committee and chairman of the All-Party Pensions Group, said: " People may be happy now with their decisions - and express satisfaction with Pension Wise services - but how they feel many years down the line is arguably more important.
"In this brave new world of pension freedom, information is key to ensuring the reforms are successfully implemented."
Which? executive director Richard Lloyd said that access to advice was fundamental to the success of the new pension freedoms.
He said: "It's good to see the committee recommending the Government moves quickly to improve Pension Wise so it provides the easily accessible, impartial and personalised guidance people need.
"Consumers should also have the full picture on their savings, so we welcome the committee recognising the importance of a pensions dashboard."
Huw Evans, director general of the Association of British Insurers (ABI), said: "We agree with the committee that savers need much greater access to information, guidance and advice and look to the new Treasury/FCA review to achieve this.
"The introduction of a pensions dashboard to give people easy access to information on all their pension saving is also something the industry is keen to support developing."
An HM Treasury spokesman said: "The Government has been absolutely clear that any attempt to exploit people who have worked hard and saved for their retirement is unacceptable, which is why we are working with police, regulators and other bodies to raise awareness and take action to protect consumers.
"We have also legislated to place a duty on the Financial Conduct Authority to require pension providers to signpost individuals to our guidance service Pension Wise and encourage people to use it."
"Six months since its launch, Pension Wise has been a real success story, with 1.5m visits to the website and over 20,000 guidance appointments - we've already committed to making this data available on a regular basis. We're continuing to build on this success, promoting the service through a national marketing campaign and our local guiders, and considering ways to make Pension Wise even more useful for consumers.
The spokesman added: "We will respond further to the Committee's report in due course."