- The Department for Work and Pensions (DWP) has confirmed plans which will see savers nudged towards official guidance from Pension Wise (Government response: Stronger Nudge to pensions guidance – GOV.UK (www.gov.uk))
- Proposals are designed to boost guidance take-up, with official figures suggesting around 1-in-7 people accessing their defined contribution (DC) pot take guidance before doing so
- Reforms will require pension schemes to offer to book a guidance appointment on behalf of members
- Savers who do not wish to receive guidance before accessing their pension can choose to opt-out
- However, DWP proposals only cover occupational pension schemes – the Financial Conduct Authority (FCA) has created different rules for other workplace pension schemes and retail pensions.
Tom Selby(pictured), head of retirement policy at AJ Bell, comments:
“Savers now have total flexibility when accessing their hard-earned retirement pot, allowing people to take an income in a way that suits their lifestyle and personal circumstances.
“However, making the wrong choice – such as buying a poorly priced annuity or taking too much, too soon in drawdown – could have disastrous consequences.
“It is therefore critical as many people as possible understand their options and the potential risks when accessing their retirement pot.
“Boosting take-up of official guidance from Pension Wise is a key part of that, as is promoting the potential benefits of taking regulated financial advice for those who can afford it.
“We therefore welcome intent of the DWP’s proposals, which aim to boost guidance take-up in a pragmatic way and give firms some flexibility over the delivery of the ‘Stronger Nudge’.
“As we move forward, more research needs to be done on the timing of this nudge to assess whether interventions earlier or later in the retirement saving journey could be more beneficial.
“There is also a legitimate debate to be had about the roles of different organisations in delivering guidance. The aim of policy should be to boost engagement and understanding of retirement options, rather than simply getting more people to take one specific type of guidance.”
Different rules for different schemes
“There are tangible differences in the rules governing occupational pension schemes – covered by the DWP – and other workplace pension schemes and retail pensions , covered by the FCA. This is far from ideal when you consider that, from a member perspective, there is little to no difference between different types of scheme.
“For example, there are differences in the nature and timings of when each regulator asks providers and trustees to nudge members towards guidance.
Similarly, the DWP rules are much more inflexible when requiring how and when members can opt out of seeking guidance, often requiring a separate communication or form to be completed. The FCA, on the other hand, has made no such stipulation.
“We hope that at some point very soon the rules will be reviewed and aligned to provide some consistency.”