The advice people take about how to use their pension savings will influence the most important financial decisions they will ever make.
Following the Government’s pension freedoms last year, savers are no longer required to buy an annuity for their retirement. They now have a wide number of choices – and now face a wide number of risks.
So, that’s why it is crucial that people approaching retirement can access good, impartial financial guidance – something we in Labour insisted on when this was debated in Parliament.
In response, the Government introduced the Pension Wise guidance service to coincide with the introduction of the pension freedoms in April 2015.
The trouble is that very few people are seeking guidance from Pension Wise or even know it exists. The Financial Conduct Authority estimates that fewer than one in five consumers are using the service, and barely one in ten people with Defined Contribution pension pots (a pot based on what has been paid in) – a total of 61,000 people – have sought appointments with the service since its launch last year.
The low take-up rate means that millions of people are potentially at risk of pension misselling and of falling prey to fraudsters intent on conning them out of their hard earned savings, or just making the wrong decisions on what to do with their pension savings.
That’s why I’m calling on the Government, with my debate in Westminster Hall, to issue new guidance to make sure savers get proper advice before drawing on their pension.
At present, the so called ‘wake-up’ packs sent to Defined Contribution pension customers ahead of retirement are often more successful in driving consumers to providers’ own products than directing people to the Pensions Wise guidance service - something that Pensions Minister, Baroness Ros Altmann, has highlighted.
What I want to see is a new approach that means customers would have to either seek advice from Pension Wise or actively opt out of doing so before they can access their retirement savings.
This would be better for savers and drastically cut the chance of savers falling risk to financial scams and other potential abuses.
If the Government fails to act, I fear that the take-up rate of those seeking advice from Pension Wise will continue to remain disappointingly low. But if ministers adopt my plan to ensure that savers do seek impartial guidance they will have given millions of people a vital financial safeguard.
Savers will have the security of knowing they have had the benefit of impartial advice before making a decision that could have a huge impact on how comfortable they will be in retirement.
I believe these proposals would be easy simple to introduce and could have a dramatic impact on helping people use their pension pots wisely.
I would urge the Government to take them on board to help ensure as many people as possible can enjoy a secure retirement.