Insufficient pension guidance and advice endangering UK savers, says Work and Pensions Committee

In a new report, the Work and Pensions Committee said that the success of new pension rules introduced in April depended on "good quality, co-ordinated and accessible guidance and advice". Reports of "lower than anticipated" take-up of Pension Wise, the free-to-access government-backed guidance service, were therefore a cause for concern, it said.

The Committee said that it had been difficult to judge the success of the service because of "a lack of both data on actual performance and benchmarks, targets or predictions against which to compare that performance". It particularly criticised the Pension Wise website as "not fit for purpose" and impossible to personalise, and said that the current face to face guidance offering was "insufficient".

"Reluctance to provide information about how a reform or service is working is rarely a good sign," said Frank Field, the Committee chair. "It is very difficult for the government to support its claims that all is well, or for us to make any assessment of progress, when no data is forthcoming despite repeated requests."

"These reforms have been in operation for six months now: it is evidence 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 the government to have published some data about how the reforms and the attendant guidance and advice are working," he said.

UK regulator the Financial Conduct Authority (FCA) must develop tougher rules and guidance for pension providers, requiring them to notify savers of the existence of the Pension Wise service, the Committee said. It also recommended that Pension Wise provide those accessing its services with more personalised guidance incorporating the enquirer's wider financial circumstances, and improve its website to incorporate an income calculator, illustrative examples tailored to individual circumstances and other interactive features.

Since April 2015, members of defined contribution (DC) pension schemes have had more freedom to access their savings in any way that they wish once they turn 55, without incurring heavy tax penalties or necessarily having to purchase an annuity from an insurer. Those accessing the new freedoms are entitled to free Pension Wise guidance at the point of retirement, although this service does not provide regulated financial advice.

The Committee heard from the FCA that 204,000 people accessed their pension pots between April and June 2015, the first three months of the reforms. This was more than double the number who had done so over the same period in 2013. Annuity sales had fallen to 12,000 over the same period, down from 90,000 between April and June 2013. The Pension Advisory Service (TPAS), which provides Pension Wise telephone guidance, completed 6,850 appointments between April and August, while Citizens Advice conducted 12,241 face to face appointments over the same period, according to Treasury figures.

"This suggests that fewer than one in ten people accessing their pots had a Pension Wise session," the committee said in its report.

The Treasury and FCA are currently conducting a Financial Advice Market Review (FAMR), which will address 'advice gaps' and barriers to both giving and seeking advice. It is due to report before the 2016 Budget. Although the FAMR has a far broader remit than pensions, the committee said that there was "clear overlap" with its own inquiry. As part of its work, the FAMR should consider whether there was a value for money case for offering two or more Pension Wise guidance sessions per enquirer, the committee said.

"The committee has correctly identified that the weaknesses in Pension Wise, combined with consumer reluctance to pay for financial advice, has resulted in a huge number of people accessing their pension savings without advice," said pension litigation expert Isabel Nurse-Marsh of Pinsent Masons, the law firm behind Out-Law.com. "If this advice gap is not addressed, the risk of poor outcomes for pension savers is increased which in turn will discourage saving and encourage complaints."

The committee also called on the government to "urgently redouble its publicity efforts" around pension scams, and said that it intended to take on a more active monitoring role over the course of the current parliament. Readier access to pension pots combined with the difficulties consumers faced in making important decisions in relation to retirement finance made the risk of scamming "an important element" of the Committee's work, it said.

However, the Committee said that evidence on whether rates of scamming had actually increased was "mixed". Although Citizens Advice told the Committee that more savers aged 55 and over were being targeted by scammers, it said that this could also be seen as evidence that publicity around the increased risks was working.

Pension scams expert Ben Fairhead of Pinsent Masons said that the danger was not so much one of a mis-selling scandal as "more of a risk that individuals will be exploited by scammers as a result of the flexibilities offered by freedom and choice".

"The industry can only work with the existing rules, and it is true that there are limitations on what information individuals are realistically going to glean from use of Pension Wise as the service stands," he said. "The ability to prevent or dissuade someone intent upon taking all of his or her pension as cash is therefore limited, particularly when there is a convincing fraudster in the background – and, once someone's cash has been legally withdrawn, the whole matter arguably falls outside the regulatory regime."

He added that it was "probably too early to judge to what extent scam activity has increased directly as a result of freedom and choice, exactly because a sophisticated fraudster is unlikely to have been found out by his victim when we are merely six months into the new regime".