Criticism of the government’s free Pension Wise service overlooks a key difference between guidance and advice.
The Department for Work and Pensions (DWP) has come under fire after it was revealed that almost nine in ten people are not seeking guidance from Pension Wise when taking benefits from their pension pots.1
In an attempt to arm savers with the right information, Pension Wise offers free, impartial guidance to those over the age of 50 who are exploring options for their defined contribution (DC) pensions.
However, speaking at a parliamentary debate at Westminster Hall earlier this month, Labour MP Rachel Reeves said that it was deeply troubling that so few people were using it.
“I am interested in what the minister has to say about improving the use and take-up of this service,” she said.
Reeves urged the government to make guidance compulsory, and to force savers to actively opt out if they do not wish to receive help from Pension Wise before taking benefits from their DC pension.
Another Labour MP, Stephen Timms, who once served as pensions minister under Tony Blair, also expressed concerns that demand for the service had been very weak.
“I think in my area there is certainly evidence of skilled [staff] sitting round twiddling their thumbs quite a lot of the time, because the demand hasn’t yet come through,” said Timms.
In response, Shailesh Vara MP, Parliamentary Under-Secretary at the DWP, acknowledged that more needed to be done to let people know about the service. However, he stopped short of saying that savers should be forced to use it, stressing that the government was not there to tell people how to plan their retirement.
“Using Pension Wise is a voluntary option, and people should be given the choice to plan their retirement in the manner they see fit,” said Vara.
Ian Price, Divisional Director at St. James’s Place, says that while he agrees that the government has more to do to direct savers to Pension Wise, people should firstly understand what sort of help they’re getting.
“Many people don’t distinguish between ‘guidance’ and ‘advice’, but there is a very important difference,” says Price. “Pension Wise provides guidance. That’s very different to advice.”
As it states on its own website, Pension Wise won’t tell you what to do with your money, whereas a financial adviser will put forward specific recommendations based on your individual circumstances.
“I would not dissuade anyone from exploring their options with Pension Wise, but I would urge everyone to seek financial advice before taking money from their pension pot,” says Price.
Missing the mark
Some have criticised the government for not going further to encourage savers to get financial advice when they want to access their money. Owen Smith MP, who is hoping to replace Jeremy Corbyn as Labour leader, has previously stated that there may even be a case for looking at mandatory advice for retirees.
Whilst Price is sceptical about the practicalities of enforcing any such scheme, he is clear about the need for advice over guidance.
“I don’t know how you can force people to get advice,” says Price. “But I agree that people need to prepare for the hurdles they will face in retirement – and the new freedoms for pensions mean that financial advice has arguably never been more important.”
1 Hansard, 6 July 2016
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