The Department for Work and Pensions (DWP) has confirmed plans which will see savers nudged towards official guidance from Pension Wise.
Providers and trustees of trust-based schemes must offer to book a Pension Wise appointment for anyone looking to access their defined contribution pension under these rules. These changes have the potential to increase guidance take-up and aid in retirement decision-making. This follows the FCA’s December publication of rules governing contract-based pensions.
The DWP proposals only apply to occupational pension schemes; the FCA has created separate rules for other workplace pension schemes and retail pensions. Members of trust-based schemes must opt-out in a separate communication, whereas FCA rules allow members to opt-out when their provider communicates with them. The FCA believes the nudge should be delivered at the time of application while the DWP believes it can be delivered sooner.
AJ Bell head of retirement policy Tom Selby says: “Savers now have total flexibility when accessing their hard-earned retirement pot, allowing people to take an income in a way that suits their lifestyle and personal circumstances. However, making the wrong choice – such as buying a poorly priced annuity or taking too much, too soon in drawdown – could have disastrous consequences. It is therefore critical as many people as possible understand their options and the potential risks when accessing their retirement pot.
“Boosting take-up of official guidance from Pension Wise is a key part of that, as is promoting the potential benefits of taking regulated financial advice for those who can afford it. We, therefore, welcome the intent of the DWP’s proposals, which aim to boost guidance take-up in a pragmatic way and give firms some flexibility over the delivery of the ‘Stronger Nudge’.
“As we move forward, more research needs to be done on the timing of this nudge to assess whether interventions earlier or later in the retirement saving journey could be more beneficial. There is also a legitimate debate to be had about the roles of different organisations in delivering guidance. The aim of policy should be to boost engagement and understanding of retirement options, rather than simply getting more people to take one specific type of guidance.”
Selby adds: “There are tangible differences in the rules governing occupational pension schemes – covered by the DWP – and other workplace pension schemes and retail pensions, covered by the FCA. This is far from ideal when you consider that, from a member perspective, there is little to no difference between different types of schemes. For example, there are differences in the nature and timings of when each regulator asks providers and trustees to nudge members towards guidance. Similarly, the DWP rules are much more inflexible when requiring how and when members can opt-out of seeking guidance, often requiring a separate communication or form to be completed. The FCA, on the other hand, has made no such stipulation. We hope that at some point very soon the rules will be reviewed and aligned to provide some consistency.”
But some industry experts say that the differences in the nudge to guidance rules risk confusion and disengagement.
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey says: “The stronger nudge to guidance has the potential to really help people make more informed retirement income decisions and boost awareness of Pension Wise. However, we need the rules to be as closely aligned between trust and contract-based schemes as possible to avoid confusion and even disengagement.