Dominic Lindley: First, regarding tax arrangements, there is a big risk if you draw down your pension over one tax year that that could push you into the higher rate tax band, so people need to be clear on that. They also need to be clear on what they will live on if the money runs out, the financial position of their partner, their entitlement to state benefits and whether they have any health conditions.
However, there is also a fundamental issue with the definition of pensions guidance in the Bill. At the moment, pensions guidance is defined only as helping you to decide what to do with your pension, whereas we know that for many people the defined-contribution pension is only a small proportion of their household wealth. For one family in four, the defined-contribution pension represents only 4% of their total financial wealth.
If I was sending my mum to get guidance about how to maximise her retirement income, I would want the person to ask questions about her existing assets, her savings, how to get the best deal on them, where the investments were and whether she was claiming all the state benefits to which she was entitled. At the moment, the definition of guidance in the Bill kind of precludes that. You hope that people such as the Pensions Advisory Service and Citizens Advice would cover those issues in the guidance, but at the moment that is not in the Bill.
Finally, we need everyone to review the default investment option in their schemes. In most pension schemes, the default investment option is targeted towards people buying an annuity at age 65, whereas we know that that is not going to happen for many people in the future. But if your default investment option is, say, to go into cash at age 65 and then the consumer is just leaving it in the pension scheme for 20 or 25 years and not actually drawing much of an income out of it, you will not only be losing money in real terms, but losing money in nominal terms. Some of the cash funds offered by pension providers are actually losing consumers money, because their charges are greater than the tiny rate of return you are getting on cash at the moment.
Again, at the moment, in a trust-based scheme, there are strong duties on the trustees to act in the best interests of members. Those duties are absent for insurance companies and for contract-based schemes. We are kind of relying on the FCA, and as you saw earlier in the week, the FCA does not seem to want to introduce even the second line of defence by getting providers to ask specific questions at the point at which people access their pension.