"If the timing of the nudge was moved earlier, before people have already made a decision and need their money to be readily available, the value of the appointment would increase exponentially."
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, first announced in December 2021, 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.
Emma Byron, managing director of Legal & General Retirement Solutions, commented: “We fully support the stronger nudge guidance. Having participated in the behavioural trials to explore the best way to persuade people to take guidance from Pension Wise, we found that stronger nudges led to a greater take up of appointments. We also saw that where people took no formal advice or guidance, they were almost three times as likely to make a cash withdrawal than put their money in an annuity or drawdown product that could benefit their finances longer term. Taking cash isn’t always the wrong decision, especially for people with smaller pension pots, but what we did see was a stark difference in the actions of people that took advice or guidance and those that didn’t. Taking financial action without giving it proper thought can have a real impact on your lifestyle long-term and as we’ve seen from recent cost of living pressures, having an adequate safety net is essential.
“We currently encourage customers to engage with their retirement planning through a number of prompts and initiatives, from signposting Pension Wise and full advice to our free ‘Midlife MOT’ course with the Open University and our use of Annuity Ready to facilitate shopping around.
“While we are confident this help will have a significant impact on the financial wellbeing of many people, it will be important that we keep a close eye on how it changes their behaviour so we can learn further lessons. It will be prudent to next consider how we support those people who are still accumulating using personalised guidance, to help them to take the necessary action to ensure their retirement aspirations will be met. If savers are not fully aware of the level of pension investment needed, then the Pension Wise appointment may be a rude awakening that leaves them little time to act upon.”
James Jones-Tinsley, technical specialist at Barnett Waddingham, added: “At face value, any move to increase people’s engagement with their pension and take advice on their next steps is a positive thing. The Government’s move to push people aged 55 and over to take a Pension Wise appointment before drawing down their pension was a sensible first step; however, it is poorly timed and mismanaged.
“To date, only 1 in 33 of those eligible have taken the appointment. If the timing of the nudge was moved earlier, before people have already made a decision and need their money to be readily available, the value of the appointment would increase exponentially. What’s more, we could learn our lesson from the success of the Covid vaccine booking system and replicate it for those in their 50s to create a smooth, streamlined appointment process.
“At a time when the cost-of-living crisis is hitting pensioners hard, making the right decisions with your money is vital. The FCA and DWP have a duty to meet people where they are, creating the best possible environment for pensioners to have a healthy and happy retirement.”
