Pension experts have warned that the government’s decision to push ahead with new regulations requiring pension schemes to nudge members towards official guidance from Pension Wise could cause confusion and disengagement.
In its consultation outcome, the Department for Work and Pensions (DWP) said it was bringing forward regulations to ensure that individuals are made aware of Pension Wise guidance when they seek to access their defined contribution pension savings and trustees and managers of occupational pension schemes facilitate the booking of an appointment as part of the application process.
The proposals are designed to boost guidance tax-up, with one in seven people accessing their pension not taking guidance before doing so.
However, experts have pointed out differences in the rules governing occupational pension schemes – as covered by the DWP – and other workplace pension schemes and retail pensions covered by the FCA, including timings of when each regulator asks providers and trustees to nudge members towards guidance.
Similarly, the DWP often requires a separate communication or form to be completed around how and when members can opt out of seeking guidance, while the FCA has no such stipulation.
Tom Selby, head of retirement policy at AJ Bell, said: “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. It is therefore critical as many people as possible understand their options and the potential risks when accessing their retirement pot.
“Boosting take up off 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.
“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.”
Selby said the differences in the rules governing different schemes is “far from ideal when you consider that from a member perspective there is little to no difference between different types of schemes.”
Selby added: “We hope that at some point very soon the rules will be reviewed and aligned to provide some consistency.”
Jamie Jenkins, director of Policy & External Affairs at Royal London, welcomed the new regulations as a step towards better understanding of pensions amongst UK savers. He said: “The world of pensions is often complex and can be difficult to navigate, so it’s great to see the government introducing new rules to try and improve the use of guidance.
“Our research found that nearly three in four (72%) adults admitted they have little or no knowledge about pensions, with nearly one in five (19%) workplace pension holders having ‘no idea’ what happens to their pension contributions. While these changes may not solve that problem overnight, it’s good to trial new ideas that might help.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, commented: “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.”
Research by Hargreaves Lansdown and the Money and Pension Service found the earlier the nudge, the more likely the pension saver will take up the appointment.
Morrissey added: “It will be interesting to see whether take-up of guidance appointments differs across trust and contract-based schemes as a result of these differences.”
