Government scraps default pension guidance

Government scraps default pension guidance

The government has removed an amendment to the Financial Guidance and Claims Bill which would have automatically enrolled people into money guidance at the point accessing their retirement funds.

The amendment, inserted during its passage through the House of Lords, was removed on 25 January, and replaced with a rule requiring providers to ask clients whether they have taken guidance, not enforce a formal opt out procedure akin to auto-enrolment.

The new wording says: “As part of the application process, the trustees or managers must ask the member or survivor whether they have received appropriate pensions guidance or appropriate independent financial advice.

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“In a case where the member or survivor indicates that they have not received appropriate pensions guidance or appropriate independent financial advice, the trustees or managers must also recommend that the member or survivor seeks such guidance or advice, and ask the member or survivor whether they wish to wait until they have received such guidance or advice before deciding whether to proceed with the application, or they wish to proceed with the application without having received it.”

Tom Selby, senior analyst at AJ Bell, who opposed the default guidance from the outset, said the amendment was a “vast improvement” and would help increase awareness of advice and guidance.

He said: "Automatically enrolling members into guidance for each transfer or every time they took money from their own pension pot – when they have already decided what they want to do – would have caused massive delays and huge complaints.

“The new amendment is a vast improvement and in the short-term should help increase awareness of the importance and value of advice and guidance. It also gives the FCA breathing room to consult on alternative nudges towards guidance that have been shown by research to be effective.”

The work and pensions committee had called on the government to make people either take or expressly opt out of guidance before they can access pension freedoms that give them unfettered access to their entire retirement savings in a report out in December.

But at a hearing on 22 January, pension minister Guy Opperman appeared to waver on the issue.

He said the government supported the need for default guidance for people wishing to take advantage of pensions freedoms but felt the existing signposting regime already provided people with "important information and encouragement to take advantage of guidance and advice before accessing a pension pot.”

He agreed, however, that providing people with further nudges was the right direction of travel.

Industry views on the issue have been mixed. Stephen Lowe, director of retirement specialist Just, for instance, backed the tighter proposal, saying it would equip people to make better informed decisions and help to prevent people from being scammed.

Others like AJ Bell predicted complaints would "go through the roof" if mandatory guidance was put in place in its previously proposed form.

The firm also said providers could not be expected to be responsible for referring their clients, which was "no small task".