Lack of trust in pension providers
Two-thirds of people would not trust pension providers to offer new impartial guidance to help them decide what to do with their retirement pot, consumer group Which? has found.
The offer of free, face-to-face guidance will be introduced as part of a package of radical Government reforms to introduce more flexibility and choice around what people do with their pension savings.
But 65% of people surveyed by Which? said they would not trust the pensions industry to deliver this guidance, while 63% said they would have faith in such guidance being put in the hands of an independent body such as the Pensions Advisory Service.
The Government is still fleshing out details of exactly who will provide the guidance, but pensions minister Steve Webb recently said it will be to a requisite standard and content. The Government has been discussing the plans with independent advice bodies like the Money Advice Service (MAS).
The guidance will coincide with radical reforms being introduced from April next year, which mean people aged 55 and over will be given the freedom to take their pension pot how they want, subject to their normal marginal rate of income tax. Previously, people have been charged 55% tax if they withdraw the whole pot.
The shake-up is expected to spark a flood of new, more innovative range of retirement products onto the market and lead to fewer people converting their pension savings into an annuity when they retire, which gives them a fixed yearly income, usually for life.
Controversy over annuities has been growing amid tumbling rates in recent years and fears that people are not getting the best deal they could by shopping around . Up until now, around 400,000 people a year have bought an annuity.
Which? surveyed more than 1,000 of its members, made up of both people who have retired and those who are still working. Seven in 10 (72%) agreed that people should be able to do what they want with their pension savings.
But many people also reported they do not feel confident about what to do with their pension savings. Nearly half (45%) are worried they would run out of money if they leave their pension invested and draw out money themselves each year.
Of those surveyed who are not yet retired, three-quarters (76%) feel they will need advice about what to do with their pension when they retire.
Which? is calling for the guidance to be given independently, via telephone, online or face-to-face, and for pension providers and insurers to be excluded from giving this information.
The consumer group's executive director Richard Lloyd said: "The Government's pension reforms could help people boost their retirement income by thousands of pounds.
"But with many unsure about how to get the most from their pension, and not trusting guidance from providers, it's crucial that everyone involved - the Government, advice agencies, the industry and the regulator - put in place a consumer-friendly system that supports people to make the right decisions."
Otto Thoresen, ABI director general, said that given the short time frame for the pension reforms, the immediate priority should be to build the guidance guarantee around independent bodies such as the MAS, the Pensions Advisory Service and Citizens Advice.
He said: "The guidance guarantee is a crucial part of the Government's pension reforms, and the industry fully supports the Government's intention to provide free, impartial guidance to savers on their options as from next April.
"The industry has an important role to play in ensuring that this happens. Given the tight time frame, the priority must be to build the guidance guarantee around existing services such as The Money Advice Service, The Pensions Advisory Service and Citizens Advice.
"Once the Government has decided on the scope of the guidance guarantee, then the role of providers in helping deliver it will become clearer."
Ros Altmann, an independent pensions expert and former Downing Street adviser, said consumers need "proper safeguards" to ensure guidance is in their own interests rather than those of the provider. She suggested the guidance could be delivered by impartial third-party bodies that are funded by the pensions industry.
Dr Altmann said: "In the new pensions world from April 2015, customers will have a wider array of options and not all providers will offer all the options.
"Indeed some options could be offered by companies that have no existing pension customers. Therefore, members of the public must be given properly unbiased information, that is standardised and ensures all the options and materials provided to them are presented in a clear and comprehensive manner."
A Treasury spokeswoman said: "At Budget we announced the most fundamental change in the way that people access their pension in almost a century, ensuring that more than 300,000 people who retire with defined contribution savings will be able to access these savings more flexibly.
"We've since been consulting on how best to offer pensions guidance to consumers. The consultation closes today and we'll be considering the responses we have received, including from Which?"