The Financial Conduct Authority will now require pension schemes to refer savers to Pension Wise guidance before taking benefits.
Its policy statement on stronger nudges towards pensions guidance says “it is a cause for concern” that only a small proportion of consumers accessing their pension pot have used the free government-backed Pension Wise for guidance with their options.
In order to encourage behaviour change, from June next year, schemes must offer to book customer a free 45-minute session with Pension Wise. They must also also explain the nature and purpose of this guidance, and will be required to keep data on consumers who decline this offer.
The FCA says it is also looking more broadly at how those approaching retirement can be appropriate advice and guidance with their pension options.
This move was welcomed by many in the pensions industry, but they warned that there must be adequate resources at Pension Wise to meet increased demand for its services. There were also calls for these ‘nudges’ to be delivered earlier in the pensions journey, rather than when consumers are applying to take benefits.
Aegon pension director Steven Cameron says: “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.” He says in this case nudging individual towards this free services “look like waster of their time and Pension Wise resource”.
He adds: “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.”
He adds that these 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.
Cameron adds: “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.”
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey says it was important that there was consistency between FCA and DWP approaches.
She adds:“These measures are good news and will help those who want more help with their retirement options get the support they need.
“The timing of this nudge towards guidance will be all important – the rules say the nudge should come as part of the application – i.e. a last call to action before a consumer commits to accessing or transferring for the purpose of accessing their pension savings – but we would argue it needs to come earlier than this.”
Hargreaves Lansdown participated in behavioural trials with the Money and Pension Service, which found the earlier the nudge came in the process then the more likely the person was to take up the appointment.
She adds: “Waiting until a point where someone may already have decided how they want to take their retirement income is never going to be as successful as contacting someone who is still exploring their options.”