People accessing pensions for first time to be ‘nudged’ for guidance
From 1 June 2022, the Financial Conduct Authority (FCA) will require pension providers to nudge savers to the government’s advice service as it said it was a “cause for concern” that only a small number of people had done so.
The policy is referred to as the ‘stronger nudge’ under the Financial Guidance and Claims Act 2018. It will apply to providers of pensions, including operators of self‑invested personal pensions (SIPPs). Stakeholders with an interest in the pensions and retirement income sector will also have to comply.
Using feedback from a consultation around this launched this year, the FCA now says that providers must refer consumers to Pension Wise, explain what the service does and offer to book an appointment or give them the information to book for themselves.
Providers will also have to confirm or record whether the consumer has received advice or guidance, as well as any refusals.
The FCA received 57 formal responses to its consultation and 437 email responses.
Around half of the responses said the nudge to independent guidance currently came too late in a consumer’s pension journey. Others suggested that people who had previously received advice be exempt from the nudge to avoid confusion.
The regulator said it believed all consumers should have access to advice from Pension Wise, even if they had received guidance before as it could still be beneficial.
If a consumer refuses guidance under the condition they have received it already, providers should explain that they could benefit from additional guidance as circumstances may have changed.
The FCA said: “Our new rules will increase consumer awareness of impartial Pension Wise guidance at the point they wish to access their pension savings and make it more likely that they take up this guidance. Taken together with our previous work, this should support decision making when consumers access their pension benefits or transfer their pension in order to access their benefits.”
Nudge could be earlier
The decision to point consumers to advice when they access their pension was welcomed, but some industry figures suggested the nudge could be made even sooner.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown: “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 the behavioural trials with the Money and Pension Service, these trials 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 is never going to be as successful as contacting someone who is still exploring their options.”
She added: “These measures only cover people with a contract-based pension scheme, and we are waiting for DWP to publish final rules for trust-based schemes. It’s important that DWP looks to apply these rules consistently across all types of pensions.”
Tom Selby, head of retirement policy at AJ Bell, said while the measure would have some impact, this could be “dampened” by the timing.
“In many cases this will be too late in the process, with the saver having already made a decision and likely to be focused on getting their tax-free cash. More testing needs to be done to consider when nudges to guidance work best, looking at the entire retirement savings journey,” he said.