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New rules to boost pension guidance take-up

Emma Lunn
Written By:
Emma Lunn
Posted:
Updated:
17/01/2022

The “Stronger Nudge to pension guidance” measures come into force on 1 June 2022 and aim to ensure savers are fully informed of their options when seeking to access their pension pots.

The new measures will require occupational pension schemes to present guidance as a routine part of accessing pension savings. They must also offer to book a Pension Wise appointment for the saver, unless they wish to opt out of receiving guidance.

The changes have the potential to boost uptake of pensions guidance and help retirement decision making.

Pension Wise is a government service that provides free, impartial, guidance to help individuals aged 50 and over consider the options for accessing their defined contribution (DC) pension.

At a Pension Wise appointment, trained specialists talk savers through their options and help them understand what their overall financial situation will be when they retire, supporting them to make the decision that’s right for them.

Guy Opperman, minister for pensions and financial inclusion, said: “We want guidance to be available to savers when making decisions about accessing their pension pots.

“These new measures support savers and further this government’s commitment to ensuring people across the country have the necessary support and information they need to make informed choices about their financial futures.”

The new regulations follow trials and a consultation launched in July 2021 by the Department for Work and Pensions.

The government says that increasing the take-up of guidance will also help protect consumers from pensions scams, increasingly driven by fake websites and online adverts.

The measures build on ongoing government work with industry, regulators and law enforcement partners to pursue fraudsters, close down the vulnerabilities they exploit, and make sure people have the information they need to spot and report scams.

The latest data from the Office of National Statistics (ONS) show pension saving has remained resilient throughout the pandemic, with total membership of occupational pensions up 7% on pre-pandemic levels. This includes an increase of 13% in private sector defined contribution membership.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “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.

“Rules around opting out of guidance are a case in point. People may have retirement savings across both trust and contract-based schemes and differing rules about what is classified as communicating an opt-out can prove an unwelcome complication.

“There’s also a key difference as to when the nudge can be delivered. While the FCA opted to go with delivering the nudge when the customer applies to take a retirement income, the DWP enables providers and trustees to deliver it earlier. While the FCA did not preclude the possibility of providers deciding to deliver a nudge earlier it set the point of application as its minimum which many providers may opt for.

“When Hargreaves Lansdown participated in the behavioural trials with the Money and Pension Service it was found the earlier the nudge came in the process then the more likely the person was to take up the appointment. Waiting until a point where someone may already have decided how they want to take their retirement income was never going to be as successful as contacting someone who is still exploring their options so it is a huge positive trustees and managers can deliver the nudge earlier in the process.”