The Government’s plan to require a stronger nudge to Pension Wise guidance for non-advised retirees is well-intentioned but ‘flawed’ because it is unworkable for scheme administrators says Premier head of pensions administration Girish Menezes.
Menezes says the logistics of organising and booking appointments, proving they are not scammers and verifying individuals’ identities, make the process so resource-heavy as to be unrealistic for schemes.
As a result of new Government regulations in the Pension Schemes Act 2021, both the FCA and DWP have been consulting on new requirements which will mean individuals can’t access their defined contribution pension flexibly or transfer to do so unless they have first taken guidance from Pension Wise or formally opted out from doing so. The DWP consultation closes today and the FCA consultation closed in June.
Aegon says stronger nudges and scams guidance referrals could put Pension Wise on course for a 50 per cent increase in appointments and cautions that it is important to avoid unnecessary nudges for advised clients or those with micro pots
The DWP also recently consulted on requiring schemes and providers to refer certain members to Pension Wise for scams guidance before they can exercise their statutory duty to transfer (2). If when vetting the receiving scheme, the transferring scheme identifies an ‘amber flag’ around possible scam risk, the member will have to confirm through a unique identifier that they have received Pension Wise scams guidance before the transfer can proceed.
Menezes says: “Premier is a big supporter of the idea that members looking to access or transfer their pension using the pension flexibilities introduced in 2015 should be strongly encouraged to get advice. Unfortunately the centrepiece of the DWP’s proposal is an unworkable requirement for administrators of pension schemes to organise and book appointments between scheme members looking to access their pensions and Pension Wise.
“In general, administrators of trust-based pension schemes deal with their members via email, web and post. Arranging meetings will be a very time consuming addition to their processes, almost definitely introducing telephone-based outreach. If the DWP proposals go ahead, pension schemes will find themselves with a burdensome duty: calling everyone over-50 looking to access or transfer their pension, convincing the member that they are not scamsters, verifying the member’s identity, asking them to check their diaries, checking Pension Wise’s diary and eventually scheduling the meeting.
“In many cases, people won’t answer the phone, will be reluctant to discuss their pension on the basis of a cold call or may even be on holiday outside the country, resulting in an expensive roaming charge. Many may not need advice at all if consolidating small pots. This is estimated to double or triple the amount of time spent dealing with each request, which is a resource commitment schemes won’t be able to afford.
“The flawed premise in the DWP’s plan is the reliance on a model for this new system drawn from insurance companies. Insurance companies typically call members when they retire or transfer because they want to promote flexible retirement products and services. Trust-based pension arrangements rarely speak to their members over the telephone unless the member is chasing delayed cases.
“Pension Wise, along with preferred IFAs, should be promoted to members looking to access their pensions using the pension flexibilities. However, setting up appointments is not a viable option.”
Aegon pensions director Steven Cameron says: “The Government is keen to make taking Pension Wise guidance the default for individuals accessing their defined contribution pension flexibly. It is also planning to make more use of Pension Wise guidance services to help people understand the risk of scams when seeking to exercise their statutory right to transfer, where the transferring scheme or provider detects an ‘amber flag’.
“While both these initiatives are well intentioned, some individuals will perceive having to seek Pension Wise guidance as delaying them being able to access their pension funds. This makes it imperative that Pension Wise can cope with demand for appointments, within one or at most 2 weeks.
“To avoid wasting member or Pension Wise time, it will be important not to nudge individuals to Pension Wise where there’s no benefit. Aegon sees no point in this nudge if the individual is already receiving advice, which will give far more comprehensive support. And there’s a case for excluding micro pots of under say £100. Unnecessary appointments will not only increase the burden on Pension Wise but will also mean additional costs for the pensions industry which funds the service.
“We must also avoid those accessing multiple pension pots ending up with repeat nudges or multiple appointments. Schemes and providers will want the flexibility to take a streamlined approach if delivering both a stronger nudge and also requiring the individual to obtain scam guidance.
“Figures from HMRC suggest there could easily be 25,000 individuals accessing their DC pension flexibly for the first time each quarter. While some individuals will ‘opt out’ of the stronger nudge, if obtaining Pension Wise guidance is truly to become the norm before accessing pensions flexibly, Pension Wise needs to be resourced up. That could mean putting in place cost-effective plans to be able to cope with a sharp increase in demand. If nudges and scam consultations come anywhere close to 100,000 additional appointments each year, Pension Wise might face a 50 per cent increase compared to the 205,000 interactions recorded for 2019/20.”