From today pension providers will be required to refer members to Pension Wise guidance when they are trying to access benefits.
These new FCA rules have been broadly welcomed by the industry, although some have questioned whether the timing of these “stronger nudges” could be improved.
In practical terms these new FCA regulations mean that pensions providers will be required to make an appointment on the customers behalf with Pension Wise, when they decide to access their pension savings, or transfer a pension to anther provider for the purpose of accessing benefits. They will also have to explain the nature and purpose of this guidance.
Standard Life managing director, customer savings and investments Jenny Holt says said these new rules should result in more people accessing helpful information which will lead to better decisions around taking pension benefits.
As she points out just 14 per cent of people accessing their DC pension for the first time currently speak to Pension Wise. She says as almost 700,000 access their pension for the first time each year this means significant numbers are doing so without support.
“The ambition to have a greater proportion of people accessing independent guidance should be welcomed, particularly when just 20 per cent of 50-65 year olds have taken the more comprehensive and personalised option of speaking to a financial adviser,” she says.
Buck head of DC & Wealth, Mark Pemberthy was also supportive of this regulatory change. “When it comes time to taking retirement benefits, many people are left facing complex and potentially irrevocable financial decisions, so any opportunity to increase engagement with education or guidance is definitely worth exploring.
“The introduction of Pension Wise was an important element of pension freedoms to reduce the risk of members making expensive mistakes, but the number of people making use of the service so far has actually been very low. Hopefully this wider rollout of stronger nudge will have at least the same impact as the pilot.”
But he pointed out that some pension savers may not get the required nudge. “Generally, single employer trusts offer limited flexibility at retirement, so scheme members who want to access more flexible options will have to first transfer to another pension arrangement. In these cases, trustees will normally be exempt from the stronger nudge and this will be used mostly for members who are fully encashing their pension funds – a decision which can have significant tax implications. A stronger nudge towards the education and guidance available from Pension Wise could then have a big positive impact for members at this stage.”
However Barnett Waddingham’s self-invested pensions technical specialist James Jones-Tinsley said this rule change has been poorly timed and mismanaged.
H“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.”
