Financial body responds to ICAS’ 5 pensions questions
Linda Gilbert, Chair of the PFS Central Scotland Region, responds to ICAS’ five key questions about the future of pension provision in the UK.
Q1. How can politicians help restore trust in UK pensions?
Fewer, more considered interventions.
One of the reasons why ISAs became popular is that for over a decade, the Government did very little tinkering.
Unfortunately this has not lasted, with a proliferation of ISAs for house buying and long-term saving that have only made things more complex for the public.
Pensions have been subject to a huge number of hasty decisions, many of which have been reversed.
The pensions freedoms are an example of a change that was made with no consultation, that has produced many unintended consequences.
Less change, and better-quality decisions, is the best contribution politicians can make.
One area where politicians need to do more is improving access to advice and education.
Q2. Is consolidation the solution to Defined Benefit funding challenges?
Yes, for some, though there can't be one silver bullet for the whole sector.
Q3. Should pension investment strategies evolve beyond traditional concepts of risk and return?
It's wrong to think about a tension between social impact and decent returns – it is possible to aim for both, as our good practice guide illustrates.
Q4. Can people make truly informed decisions about what they need to save for retirement?
There are some decisions that only individuals can make e.g. about how long they are able to work, and about competing priorities such as maximising income in retirement and leaving a legacy to other generations.
There are other judgements that very few people can make, even if they are given all the information they need e.g. about the financial strength of their pension provider.
The aim should be for regulation to take care of decisions that individuals can't make.
- Linda Gilbert, Chair for the PFS Central Scotland Region
The aim should be for regulation and 'nudges' to take care of the decisions that individuals can't realistically make, and for professional advice and good-quality guidance to be there to support them with the decisions only they can make.
Providing this support means increasing access to advice by putting the Financial Services Compensation Scheme and the current system of professional liability insurance on a strong permanent footing, by paying for both through a levy on retail funds under management.
We also need to see the Government introduce the 'mid-life' MOT to give seamless guidance and regulated advice to the public.
Q5. How can we drive quality and competition in the DC market?
Through advice.
It is a myth that people can't afford advice – research commissioned by Royal London has shown that even people who are relatively modest incomes benefit hugely from good financial advice.
We have to end the practice of charging contingent fees on DB pension advice.
- Linda Gilbert, Chair for the PFS Central Scotland Region
Good-quality advice depends on getting the incentives right. We got the incentives right for RDR and the quality of advice shot up to the point where the FCA said that 93% of investment advice was suitable.
The incentives for pension freedoms are not right at the moment, and only 47% of advice in this sector is suitable. We have to improve incentives to give good advice by ending the practice of charging contingent fees on DB pension advice.
Trustees also need to get more involved in good decision making for members. Too often, they leave members with poorly designed decisions and inadequate information and education.
What do you think?
Leave your thoughts on these five key questions in the comment box below.
