"It’s very hard to get excited about the new ‘stronger nudge’ rules when the evidence shows it is only going to have a marginal effect."
From 1st June 2022 pension providers will have to give customers a stronger nudge to Pension Wise when they decide to access their savings.
Providers will be required to refer customers to Pension Wise guidance, explain the nature and purpose of the guidance and offer to book a Pension Wise guidance appointment in most cases.
The changes implement a requirement set by Parliament and are designed to increase take-up of the Pension Wise service.
The rules apply to providers of personal and stakeholder pension schemes, including operators of self-invested personal pensions. The FCA has worked with the Department for Work and Pensions on these rules, as they are working on corresponding regulations for occupational pension schemes.
Steven Cameron, pensions director at Aegon, commented: “The new stronger nudge will result in many thousands more people approaching retirement accessing the valuable guidance offered by Pension Wise. Making the right decision on retirement options is hugely important and people do need support. But we’re surprised and disappointed that the FCA’s new rules still require the nudge even to those who have taken advice. Ideally, many people will opt to pay for full financial advice, which will go much further than Pension Wise by offering a tailored recommendation based on personal circumstances. Nudging such individuals looks like a waste of their time and Pension Wise resource.
“While well intentioned, the stronger nudge effectively means pension providers will be telling individuals that they can’t access their pension until they have had an appointment with Pension Wise, or opted out. This makes it essential that Pension Wise can cope with an increase in demand for appointments, without delays for customers. With the introduction of nudges on 1 June, the timescales are tight particularly as Pension Wise has also just become responsible for delivering guidance ahead of transfers if the pension provider suspects a possible scam. Based on the numbers of people who’ve recently been accessing their DC pensions flexibly, if Pension Wise guidance does become ‘the norm’, they could see an increase of 50% in appointments.
“The FCA’s new rules apply to individuals in ‘contract-based’ pensions. The DWP has been also consulting on stronger nudges for those in ‘trust based’ schemes but with some key differences. The DWP is yet to publish its final rules but the FCA’s final rules show little sign of having considered adopting the DWP approach, which we saw as preferable in a number of areas. This is disappointing and with some individuals having both trust-based and contract-based pensions which they may be accessing together, lack of consistency in final rules risks confusion.”
Stephen Lowe, director at retirement specialist Just Group, said: “It’s very hard to get excited about the new ‘stronger nudge’ rules when the evidence shows it is only going to have a marginal effect. What is needed is an intervention that gets people using the Pension Wise service earlier, before they call their provider to ask to take out pension cash, and one that delivers a far greater rise in numbers than the nudge.
“Calls for a small trial of a system that automatically books guidance sessions for key groups from age 50 have fallen on deaf ears despite it being the most credible idea to boost guidance use. Government needs to stop rationing the Pension Wise service and take the only big idea on the table and run a trial
“It’s nearly a decade since we started automatically enrolling employees into workplace pensions, but we seem not to have learned the key lesson of that bold step. Our own research found that fewer than 4% – one in 25 people – aged 45-54 with defined contribution pensions would opt out of a guidance session that has been booked for them.
“Free, impartial and independent Pension Wise sessions are a key part of consumer protection in the era of pension ‘freedom and choice’. While the government has talked about making guidance use the ‘norm’, its actions will continue to limit it to the few rather than reaching out to the many.”