Psst! Wanna cash in a pension? Know what I mean? Nudge nudge, wink wink.
That is what the promise made by former chancellor George Osborne has come to. Eight years — and three chancellors — ago, he promised everyone “advice” if they decided to take the momentous step of turning a pension fund — that had promised them security in retirement — into cash.
He told parliament: “We’re going to introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution [DC] pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have….
“I am providing £20m over the next two years to work with consumer groups and industry to develop this new right to advice.”
Advice. Face to face, no less. And free.
No amount of nudges, winks, smiles or hope will stop people doing what they want with their money
Osborne said it three times in that Budget speech on 19 March 2014 and, as the Bellman cried in Lewis Carroll’s The Hunting of the Snark: ‘I have said it thrice: what I tell you three times is true.’
The face-to-face advice would apply to everyone — everyone — seeking to cash in their DC pension.
Diluted promise
Of course, it did not happen. As I wrote in January, advice has been weakened to guidance, then signposting, and now helping.
But even that is rejected by most people. The latest official research indicates 97% of those who cash in a pension do not go to the signposter-in-chief — the publicly funded Pension Wise.
Most people will prefer to cash in the retirement of certainty to fund the Lamborghini of desire
The government decided to start nudging. To be clear, these are not just any old nudges. They are not even M&S Nudges. They are the Stronger Nudge.
The Department for Work & Pensions has even held Stronger Nudge trials, with results published in the Stronger Nudge Evaluation Report. If you did not know all this was true, you would be incredulous by now.
The purpose of this Stronger Nudge is to increase the number of people who go to Pension Wise and obtain guidance about whether cashing in the pot — that has been contributed to by them, their employer and of course all the rest of us taxpayers — is a good idea or not.
Official research indicates 97% of those who cash in a pension do not go to the signposter-in-chief — the publicly funded Pension Wise
Only 3% of the control group who received no Stronger Nudges went on to get Pension Wise guidance. In 2020, nearly 1.4 million people cashed in over £9.4bn of tax-subsidised pensions. On these figures, that would leave 1.35 million of them without guidance and just 41,850 with it.
After a Stronger Nudge, the percentage who went on to get guidance more than trebled to 11%, but that still leaves 89% who resisted the Stronger Nudge. That would mean 1.24 million people cashing in £8.4bn of taxpayer-subsidised savings in 2020 without getting guidance as to whether it was a good idea.
Pensions Dashboard
The work and pensions select committee of MPs believes this is because it was Not A Strong Enough Nudge. It has produced its own plans for an Even Stronger Nudge, and called in the distant apparition of the Pensions Dashboard to “provide an important additional tool”.
But perhaps all along the Nudge is the wrong approach. To further quote Carroll:
They sought it with thimbles, they sought it with care;
They pursued it with forks and hope;
They threatened its life with a railway-share;
They charmed it with smiles and soap.
Those methods did not find the Snark either, but one thing got close. Do we need a trial of a Wink because that almost caught the Snark?
And even the Baker, though stupid and stout,
Made an effort to wink with one eye.
But then,
He had softly and suddenly vanished away —
For the Snark was a Boojum, you see.
So let us give up on the trial of a Bigger Wink and accept that most people will prefer to cash in the retirement of certainty to fund the Lamborghini of desire.
Advice has been weakened to guidance, then signposting, and now helping
That is what freedom is all about. And no amount of nudges, winks, smiles or hope will stop them.
Paul Lewis is a financial journalist and host of Radio 4’s Money Box
This article featured in the February 2022 edition of MM.
If you would like to subscribe to the monthly magazine please click here.
Paul, was that what happened, cashing out the pension for the Lamborghini? I heard a good number of DC pension owners approached the task quite sensibly.
First of all and let me make this perfectly clear …
Anything free, is provided, by someone who has paid for it !!
And no-one values free !!
Also, are we so shocked that any MP, Government Minister, or Bureaucratic Fiduciary lies to push their very own agenda.
Pension freedoms IMHO is a good thing completely balls’d up by government offing impossible promises, regulators sitting back and letting themselves be manipulated by the feckless and forever being late to the party …. every pie, crisp and vol-au-vent consumed, all alcohol gone, just the lone bottle of Advocaat sitting as unloved as the advice industry on the sideboard.
The scammers, feckless and fraudsters lie about the floor, comatose’d by the gluttony afforded to them “free” by the people who paid for it !!
It might have been good idea to impose an aggregate ceiling of £30k (the same as for pension transfers) on pension fund encashments without advice. Why did this not occur to anyone?
Pensions advice is valuable and can make/save people significant sums of money.
However, politicians (and journalists) should also accept that you can’t pass laws that tell people how to spend their own money.
People are individuals, and will make their own decisions. Even if some of us think they are stupid decisions, you can’t stop everyone making them.
The thing was that HMG thought that pension freedoms were a great idea. All that pension money cashed in and spent. Also all that juicy tax revenue.
IMO, the use of the term ‘pension pot’ was also a mistake.
To most people that meant a big box of cash with their name on it. Just like a piggy bank. Nothing more nothing less.
Just what was wanted for that car, house, holiday etc.
Of course there is another way of looking at this. It could be that those cashing in pensions without seeking advice do actually know what they are doing. Recently I cashed in a pension without advice, partly because I have a reasonable knowledge of the regulations, but mainly because I have three other much larger pensions that will provide adequate long-term income. Others might have say, a reduced life expectation, and might simply wish to ‘enjoy life whilst they can’. And, I’m sure there are many other very good reasons why pension encashment happens without advice for perfectly valid reasons.
Of course, not everyone cashing in their pensions will be well informed, but it would be wrong to impose the cost of advice on those that do know what they are doing.
So, personally, I think the current position is about right. Those that want / need support can access the (rather good) Pension Wise service. Those that choose to spurn this support must accept responsibility for their actions and, if they choose to ‘splash the cash’ and then run out of money before they die then they will have to suffer the consequences of that choice.