Aegon’s Steven Cameron highlights the need for join up on the FCA and DWP proposals around nudges to pensions guidance.
The DWP is currently consulting on introducing a stronger nudge to pensions guidance for members of trust-based schemes to fulfil its obligations arising from Government legislation. The FCA’s consultation on this same topic for members of contract-based pensions closed last month. Despite this being an ideal topic for join up, the DWP and FCA proposals differ in many regards, with the potential for customer confusion and additional costs for providers.
Here, Steven Cameron, Pensions Director at Aegon (pictured), explains the key differences and suggests a common way forward.
“For those planning to access their pension flexibly without advice, a stronger nudge towards pensions guidance from Pension Wise can be very helpful. This applies equally to members of trust and contract-based pensions, but in places, the proposals from DWP and FCA are different, potentially leading to confusion for individuals who have both forms of pension and additional costs for providers offering both types of scheme. We’re urging DWP and FCA to work together to implement the ‘best of’ their respective proposals.
“The FCA is proposing that providers must provide a stronger nudge to all those over 50 who are transferring. The DWP sensibly excludes the need to nudge for those doing so for the sole purpose of consolidation. This exemption will remove the inevitable time delays from nudging towards unnecessary Pension Wise guidance ahead of consolidation, which will often be several years ahead of any decision to access benefits.
“The FCA is proposing providers need to arrange bookings with Pension Wise for clients who don’t want to do so themselves. The DWP says trustees and administrators can, for online journeys, simply provide a link to the Pension Wise online booking service. However, the FCA’s proposals suggest the provider would have to offer to use the online booking service on behalf of the customer. We’d like the FCA to adopt the DWP approach, which allows a streamlined digital approach without the backward step of needing human intervention in online journeys.
“The FCA proposes placing an obligation to nudge on whichever of the ceding or receiving scheme is approached by the individual regarding transferring to access benefits. The DWP limits this to the member’s current scheme, which we see as preferable as it avoids the need to introduce two separate nudge processes for transfers out and in.
“Individuals can formally opt out of receiving Pension Wise guidance. The DWP proposes this can’t be done during the initial ‘nudge’ interaction but kept separate. The FCA is less convinced of the need for this although is asking if a break period or minimum time lag would make sense. We’re concerned that separating opt out or breaking the journey may simply be seen by those who have already decided on accessing as an unhelpful barrier.
“The DWP is asking if there is a case for some de minimis pot size below which a nudge may not be required, while the FCA is silent on this. There could well be a case for excluding truly micro pots and if so, this should apply consistently to both trust and contract-based pensions.
“In other areas of pensions, there are encouraging signs that the DWP, the Pensions Regulator and the FCA are working together on the pensions consumer journey. We’re urging all parties to do likewise on stronger pension nudges.”