In May, LexisNexis and the Pensions Administration Standards Association (PASA) published Digital Pension Fraud: A looming crisis awaits, a White Paper that makes for a sobering read. From 2009 to 2019, the report points out, fraud in the sector grew by more than 55%. Last year alone, fraud levels rose by 10% – and they continue to grow, with annual losses now equating to around £190bn.

The spectre of fraud is doing little to improve public trust and confidence in traditional pensions. “In recent years, particularly during the pandemic, scams have grown in sophistication,” says My Pension Expert Policy Director, Lily Megson. “And given that this industry has never been the most transparent to begin with, scams would certainly have contributed to a straining of the relationship between the public and the pension sector.”

Rachel Vahey, AJ Bell Head of Policy Development, believes the challenge to trust caused by scams is rooted in something far deeper than anxiety over recent events. “The fact that people still refer to the Robert Maxwell and Equitable Life scandals, which happened decades ago, shows that the UK has a trust issue with pensions,” she says.

Constant changes

Against a backdrop of fraud concerns, the current economic climate is also taking its toll, Megson says: “Even with inflation beginning to fall, many people would have seen the value of their savings fall amid the preceding rise. And even those with annuities, which suggest an element of security in guaranteed income, would see that income struggle to hold its value – despite annuity rates reaching all-time highs in recent months.”

Vahey believes constant changes in government policy, altering the rules for personal and state pensions alike, are further diminishing public trust in the pension system. “Spring Budget headlines declaring ‘No more lifetime allowance’ were immediately seized upon by the Labour Party, which vowed to U-turn any changes. As a result, even though people can now contribute more – or take benefits above the lifetime allowance without incurring a charge – they are nervous to do so, in case Labour gets to reverse those decisions later on.”

Megson credits the government for taking some positive measures – such as supporting Pension Wise to ensure that savers can obtain free guidance. “That’s a small step, but guidance is a strong starting point for people to build a foundational knowledge of the various retirement finance options available to them.” In addition, she notes, affluent savers who can afford to take advantage of the lifetime allowance’s abolition would very likely have been pleased when that policy was announced.

However, she says such measures constitute the limit of the government’s activities in this field – or so it would likely seem to many UK savers. “Indeed, the vast majority of people in the UK are in no position to significantly increase their pension contributions without causing major financial repercussions to their current circumstances.”

Human contact

For Vahey, it is important for the government to be very clear about what it is asking people to do – and how much it is asking them to save. “People need that clarity of vision to make effective decisions. But they also need help. Closing the help gap by allowing providers to support customers with practical guidance should nudge pension savers towards making better decisions.”

Megson takes a similar stance. “Most urgently, the government must do more to improve access to independent financial advice. Using guidance as an initial starting point on one’s retirement journey – and then as a prompt to seek affordable, independent financial advice – could be a game-changer for restoring public confidence in pensions.”

Better access to advisers would provide savers with clear information about the various options available to them, and – more importantly – tailored recommendations as to the most suitable products for their particular needs, Megson believes. Having that human contact on hand throughout the journey would grant savers certain reassurances.

In the longer term, Megson stresses the importance of the government sticking to its latest deadline for the Pensions Dashboard project, an online tool that will give people an at-a-glance view of all their retirement savings. The release was initially planned for 2019.

“While it’s right for the government not to rush to release an inadequate platform – which of course would be counterproductive – the constant delays we have seen are doing little to instil public confidence,” she says. “The government must outline a clear timeline for the project and commit to transparency throughout the development process. That would certainly mark a positive step in restoring public pension confidence.”

Vahey would like to see the government take steps to encourage more retirement saving among the self-employed. “Automatic enrolment doesn’t work for these individuals,” she says, “so we need to think outside the box to come up with more innovative ideas to kickstart their long-term savings.”

Real engagement

Experts are also hopeful about the impact of changes across the pensions industry itself. Vahey foresees significant benefits from the rollout of Consumer Duty – a Financial Conduct Authority (FCA) scheme to set higher and clearer standards of consumer protection across the financial services, requiring firms to put their customers’ needs first.

“By next month, all FCA-regulated firms – including pension providers – will have adopted Consumer Duty into their businesses. This initiative should go a long way to help improve communications, understanding, service and, importantly, consumer outcomes,” Vahey says.

In addition, Vahey wants to see a ‘clear vision’ from providers. “Simple, clear language – together with a clear picture of what savers have built up so far and what they can do to add to that – should help to build real engagement and trust.”

Megson also takes the view that commitments to improving trust and transparency will be vital. “Many savers feel that the pension industry is very closed off, with little information available when it comes to processes,” she says.

Pension transfers is a case in point, with numerous reports highlighting long delays in transferring clients’ pensions, with little to no explanation. “Yes, the industry does require providers to carry out certain security checks, meaning that transfers cannot happen instantaneously. But there is little clarity as to what causes longer delays. It would be difficult to argue that savers would view such a lack of transparency throughout these processes as a confidence booster.”