Last year’s Queen’s Speech tackled a number of issues, from the care system, energy reform, and consumer rights. We were hoping for a similar focus on the needs of consumers this year, and we weren’t disappointed.
The two pensions Bills are good news for savers and could help boost retirement incomes, provided the right consumer protections are in place.
The Pensions Tax Bill, originally announced in the Budget, will give people greater freedom over how they use their pension pot by removing the requirement to buy an annuity. We know that in the past the annuity market has not worked in the best interests of consumers and has not been competitive.
When we surveyed people in October last year, four in ten who were contacted by their provider as they approached retirement said they didn’t get a clear explanation that they could potentially get a higher annuity if they have certain health problems, or if they shopped around.
Trusting your pension provider
The lack of guidance and advice meant that the majority of people have taken the annuity offered by their existing pension provider, when they could have got a better deal on the open market.
Those who shopped around for an annuity were significantly more likely to feel satisfied with their annuity purchase (76%) than those who did not (52%).
With providers letting consumers down when they’re making this crucial decision, it’s no wonder that less than half of people coming up to retirement trust their pension provider to act in their best interest.
The key to making these new reforms work, and restoring trust in the industry, will be ensuring that consumers have access to genuinely impartial guidance and advice.
This means giving people personalised and one-to-one guidance to ensure they have clear information about all their options across the market and how to access the pension and savings they have. It should help them make a plan and tell them where to get regulated financial advice.
If this is done properly, people could be thousands of pounds better off over the course of their retirement.
The Private Pensions Bill could also increase retirement income by introducing legislation that allows for collective pension schemes which lower the risks of the investments and offer consumers greater certainty about how much pension they might receive. This will be welcome news for the thousands of people worried about how much they will need for retirement.
Nine in ten people think it’s important to know how much income they are likely to get when they retire and 28% of consumers who had opted out or were thinking about opting-out of auto-enrolment pension schemes said that this was because they were concerned that they would get back less than they put in.
While this all sounds positive, it is vital there are high quality standards in place to ensure these schemes are run in the best interest of consumers.
The Government must ensure charges are set as low as possible, people are allowed to transfer between schemes without facing unfair penalties, and consumers are given clear information on the benefits and risks.
There should also be complete transparency about the financial position of funds so people can feel confident they are being enrolled into good value schemes and know that they will get back the money they were promised.
Retirement is a critical time in people’s financial lives and they deserve maximum help and protection when making these difficult decisions. We look forward to working with the Government and industry to help deliver this.