Will anyone use the government pension guidance service?

12 February 2015

Less than 2% of people approaching retirement who were referred to The Pensions Advisory Service (TPAS) actually contacted the organisation for guidance, casting doubt on the effectiveness of the government's forthcoming pension 'guidance guarantee'.

In its most recent business results, Royal London Asset Management (RLAM) reveals it sent out 3,600 letters in 'wake up packs' to people coming up to retirement age, referring to the services on offer from TPAS.

However, only 71 people - less than 2% - actually contacted TPAS as a result, prompting RLAM chief executive Phil Loney to conclude that "customers are not ready for the new pension freedoms, which have been thrown into place in an entirely unrealistic timescale".

He adds: "I fear that many will make the wrong, often irrevocable decisions about their retirement and this will result in some very poor outcomes."

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Minimal take-up

He attributes the minimal take-up to a lack of basic financial knowledge on the part of savers.

The government recently unveiled its Pensions Wise service, offering free guidance to people at retirement on how best to take advantage of the new freedoms introduced in last year's Budget, which come into effect in April.

Loney adds: "I remain to be convinced that a new leaflet with a new logo and a publicity campaign will dramatically improve response rates anytime soon."

City watchdog the Financial Conduct Authority surprised the pensions market by suddenly introducing requirements for pension providers to guide customers on the risks involved with taking their money after age 55.

But Loney remains unimpressed. "We believe that this belated intervention will not solve the problem. Most people have no idea how close they are to the next income tax threshold, or how the detail of means-testing for welfare benefits works."

Meanwhile, index provider FTSE Group has partnered with Legal & General Investment Management to launch a new series of indices measuring the value of retirement pots against current annuity rates.

This article was written for our sister website Money Observer

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