Speaker: Money and Pensions Service (MaPS) chair Sir Hector Sants
Here in the UK, by 2030, over 13 million people will be at, or beyond, the State Pension age.
Many of these people will face complex decisions about how to make their Direct Contribution (DC) pensions last a lifetime. Others may find their pensions options are very limited. Some of these, sadly, may also lose pension savings to scammers.
At the Money and Pensions Service (MaPS), our statutory mandate places us at the heart of addressing this challenge.
We have a duty to develop and coordinate a UK Strategy for Financial Wellbeing. We published this in January 2020.
In that Strategy, we set out the goal to create an ecosystem, working with empowered and confident consumers, which enables everyone to plan confidently for retirement and make the most of their financial resources: both before and after retirement.
Our specific goal for 2030 is: 5 million more people understanding enough to plan for later life by 2030.
At MaPS we also deliver a set of specific services which contribute to that goal. In particular, we offer free and impartial pensions guidance – including Pension Wise appointments – and we are leading the Pensions Dashboard Programme. We also have a consumer protection role in helping to prevent pension scams.
Over the next ten minutes I will set out some of the key challenges to achieving that goal and make some suggestions as to how we can collectively overcome them.
- Limited financial skills and knowledge are major hurdles. We know that consumers struggle with percentages, compound interest and other financial literacy skills. The move to DC pensions brings with it an expectation on consumers to manage complex investment portfolios in the future: that’s a huge ask given where we are now.
- Access to reliable and consistent information. MaPS believes that almost everyone can benefit from pensions guidance. We believe empowered, knowledgeable, consumers benefit both industry and themselves. We know that Pension Wise customers find the service very helpful, but unfortunately, consumers often find guidance and advice unattractive and irrelevant. Possible explanations include:
- Trust: Distrust of the financial services sector, including pensions, has ebbed but remains. (There may also be trust in the state and employers to ensure good pension outcomes, thus making planning unnecessary – a belief likely to have been affirmed by the State’s paternal role during the pandemic.)
- Jargon is rife in pensions. Many consumers do not understand key phrases like ‘Defined Benefits’ and ‘Defined Contributions’. Nor do they understand products like annuities. Language is not even used consistently within the industry.
- Also, understanding what you have, and what you need, is not straightforward. Pension dashboards will be a huge step forward and provide a partial answer to the question: ‘what do I have?’. But they won’t address the question: ‘what do I need?’ There are differing approaches among providers when it comes to pensions calculators, statements, savings guides and ‘top tips’.
- My third challenge is motivation. A will to understand and engage in pensions is key. Often, attempts to ‘scare’ people into action simply scare them off. Behavioural theory suggests inertia may be down to ‘present bias’: where people focus on the present in response to perceived future uncertainty. There may also be a fear of not knowing enough or making the wrong decision.
MaPS works to address these challenges in three areas:
1. Creating easier customer pathways. MoneyHelper, our new consumer brand, provides one point of contact for impartial and free guidance on money and pensions. It complements our Pensions Guidance Transformation Programme with an emphasis on ‘the right guidance at the right time’. Our aim is to create a seamless holistic customer journey, with a choice of channel options. This includes a new guidance appointment for those at risk of scams and processes to support the referral to Pension Wise from providers.
2. Creating the infrastructure for Pensions Dashboards. From 2023, schemes and providers will begin to be legally compelled to connect to the pension dashboard ecosystem. Dashboards will become available to consumers to use when enough schemes have connected. The MaPS Dashboard will sit at the heart of a new MaPS Retirement Planning Hub.
3. Working with partners across the sector with a focus on pre-retirement tools. In particular working with the Department for Work and Pensions and others on a mid-life MOT for those aged 45+. But there are also other areas where we can work with partners like you…
So, what can industry, employers and society do?
1 There is a huge opportunity for employers to engage their workforce on pensions as part of a wider financial wellbeing offer. More work is needed to make the business case for this, especially around pensions where the implications of non-action may not be obvious. However, there are already many examples of companies offering integrated financial wellbeing support to their employees. Widespread adoption of such precipices will be critical to achieving our national goal.
2. We can all do more to ensure a consistent and accessible experience for consumers. This could include an agreed approach on shared simple messages for consumers (using EAST principles), and a more consistent approach to calculator tools; that reflect changing working lives and the PLSA’s Retirement Living Standards.
3. We need to continue to change people’s attitudes and relationship with money. It needs to move from a transactional one often triggered by events such as an imminent retirement to something that is thought about on regular basis.
Annual awareness opportunities, for example Talk Money Week (November) and Pensions Awareness Day (September), could also be scaled further. Fundamentally, we need to regularly engage with community and society to make talking about money and pensions a part of everyday conversation.
Let me finish on a positive note: auto enrolment has changed the landscape here in the UK. I support this momentum. These foundations, combined with the benefits of the digital environment and a holistic approach to wellbeing, means our 2030 goal of 5 million more people understanding enough to plan for later life by 2030 is achievable.