The House of Commons Work and Pensions Committee, in its first report on the pension freedoms released on Monday, said as a result consumers were at risk of making poor decisions with their life savings.
“We heard concerns that the range of support on offer leaves gaps, particularly in the affordable middle ground between free general guidance and expensive independent advice,” the report’s authors stated.
“In particular, provision in the middle ground between free guidance and traditional but expensive face-to-face independent financial advice is woefully inadequate,” the report stated.
Private sector praise
The Committee said it had been impressed with the way the pensions industry and the regulators had quickly identified the affordable advice gap as a problem.
“We heard impressive examples of innovative products and over time we expect the market to adapt to largely close the gap. The future of financial advice and guidance is clearly predominantly online and interactions will be increasingly focused on single transactions,” it said.
“The role for regulators is to enable innovation and market entry by adapting to these changed circumstances,” it said.
However, it said the government’s own Pension Wise advice service was particularly concerning.
“Pension Wise was created to fill a potentially dangerous anticipated gap in support for consumers, including for many people who are unable or unwilling to pay for independent advice. Low take-up of its service is therefore a concern,” the Committee said.
It recommended the government and the Financial Conduct Authority do more to develop a more holistic service which offered more personalised support.
Creeping nationalisation
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said the Committee’s support for the expansion of public services to fill the gap between advice and guidance represented “creeping nationalisation” of the UK’s financial services.
“Take-up of Pension Wise has been very modest, whereas by comparison the pensions industry has in the main risen admirably to the challenge of the Pension Freedoms,” McPhail said.
The provision of tools, information, telephone and email support as well as shopping around services by the pensions industry dwarfs the efforts of Pension Wise.”
