So, a little under three months from the introduction of the government’s wide-ranging pension reforms, the guidance guarantee service has a name: Pension wise.
The guidance guarantee is the offer of “free and impartial guidance on how to make the most of the new pension freedoms” promised by George Osborne as he unveiled the shake up to the retirement market in the Budget of April last year. From April, an estimated 300,000 people a year will have the ability to access their pension savings and do with them as they will, where previously they were required to purchase an annuity or drawdown product.
The Citizens Advice Bureau (CAB) will offer face-to-face appointments and The Pensions Advisory Service (TPAS) will deal with telephone enquiries. Both of these will all fall under the ‘Pension wise’ moniker.
Pensions expert Ros Altmann, who is working with the government as their ‘business champion for older people’ has wisely called for an “extensive campaign to ensure ‘Pension wise’ becomes a strong and recognised brand”.
But even then, there remains a worrying lack of detail about the service itself, how it will work and what it will cover. There are also question marks over the hand-off to full independent financial advice. On many of the key points, all we know is that we don’t know. The relevant legislation is still progressing through the Lords, and although those for whom retirement is imminent might be aware change is coming, they won’t necessarily have all the facts.
As Linstock’s Keith Brookbank wrote last year the Great British Public aren’t for the most part in the habit of getting advice about their finances, so getting them bought into the idea of guidance is tough in itself. The ‘Pensions wise’ campaign will need to address this, and look to shift the social norm.
First, the campaign will need to show the value of guidance, and the value of full financial advice as well, highlighting that better outcomes result from engaging with independent experts when making key financial decisions.
Second, the campaign should address the social norm. Peer behaviour is a powerful motivator, we compare ourselves to those around us to work out how we’re doing in life, and don’t like being left behind. Here, ‘Pension wise’ should borrow from the work the Behavioural Insights Team did with HMRC around income tax. A simple line in reminder letters saying most people in your postcode area had already paid their taxes boosted repayment rates by 15%. A similar line about how many of your peers have taken up the offer of guidance and benefitted from better results could be just as powerful.
There’s an obvious point to deliver this message. For many, the first time they think about their options is when they receive a ‘wake-up pack’ from whichever provider they’ve been sending their pension savings to all these years. The industry sends these packs out six weeks before an individual’s retirement date, meaning the first packs for those retiring in April go out in about five weeks’ time. But as things stand, the pensions industry will be wondering what exactly they ought to be putting in them. ‘Pension wise’ needs to be leading the way, making sure messages about guidance are getting through.
It’s important to get right – the pension freedoms have created an uncertain world, where uncertainty already existed. Research from Linstock client Suitable Strategies found that 37 per cent of the UK population don’t understand how an annuity works. Another survey, release this week by ILC-UK backed this up, and also found that only 35 per cent of those aged 55-70 understand income drawdown – even fewer understand the tax implications. Add to that the complications of the new pensions world, and it paints a concerning picture.
So, there’s an education job to do, and quickly. Guidance has to play a big role in this, drawing attention to the complexity of the options, and signposting to full independent financial advice where appropriate. But, they have to get people there first. The ‘Pension wise’ brand is a good start, but there’s not long left. They’ve got their work cut out.