An influential Parliamentary committee has warned that people are risking their retirement savings with poor-value products, and has recommended capping charges to prevent pensioners being ripped off.
The Work and Pensions Committee has today produced its final report into how the pension freedoms are working so far and has put forward a number of recommendations, which include default investment choices and financial advice based on algorithms – rather than a face-to-face service.
Introducing a default pension ‘pathway’
People aren’t always engaged with their retirement savings when they come to convert their pensions and aren’t always informed enough to make an active choice, according to the committee of MPs.
The Work and Pensions Committee has recommended that default investment ‘pathway’ should be offered to people receiving their pension, to protect those who do not understand their options for investing their savings.
As part of these recommendations, all providers currently offering drawdown products (including the government-backed defined contribution scheme Nest) would have to develop suitable default investments, with fees capped at 0.75%, to be available by April 2019.
In March, Which? revealed that some retirees see more than £12,000 sapped away in charges by managing their pension with the most expensive companies and making the choices about where to leave their savings.
A single pensions dashboard
The Committee also said there should be a single pensions dashboard, where people can see all their pension pots in one place, in operation by April 2019.
Participants in the inquiry felt that the multiple pensions dashboards being planned would only ‘add complexity to a problem crying out for simplicity’.
Committee members called for the government to be required, if necessary, to force all pension providers to give the necessary information to the single pensions dashboard.
Face-to-face versus automated advice
So-called ‘robo-advice’ – or automated online financial advice – was also considered in the committee’s report. It stated that there is a clear role for automated services in providing cheaper advice.
However, there remain consumer reservations around robo-advice, which means issues with trustworthiness must be addressed before this channel can be developed.
It is proposed that the UK’s financial watchdog, the Financial Conduct Authority, conducts and publishes a review comparing consumer outcomes from face-to-face and automated advice.
Gareth Shaw, Which? money expert, said of the committee’s proposals:
‘The Committee’s report rightly highlights the real need to better protect consumers who are not engaged with their pensions. A cap on charges for default drawdown products is a good measure that will prevent people sleepwalking into excessive fees at retirement.
‘A pension dashboard can really help consumers properly plan for retirement. But for it to work, it must ensure all providers sign up so that people can conveniently access all the information they need.’