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It seems strange the Financial Conduct Authority doesn’t recognise this universal truth. In its recent consultation on ‘stronger nudges’ it proposed providers offer unadvised customers a Pension Wise appointment to help them choose their retirement options, but, crucially, at the point they approach the provider to ask for their money.
There is simply not much point doing this then. Most of these customers will have spent weeks or even months mulling over what they should do to get their finances right. A significant number will have done their research, read articles, and googled websites. Now they have made their decision, they will want their funds as soon as possible, as often they are asking for them for a specific reason.
This is borne out by Money and Pensions Service research last year. It found that a stronger nudge delivered when accessing benefits increased the number of Pension Wise appointments made to about 14 per cent of customers. But some saw it as an inconvenience.
One customer said: “All I knew is I wanted to ring them up and get the lump sum. I had one aim: to get the money. That was it, so I wasn’t really interested in any other alternatives at that point.”
Nudging at access is precisely the wrong time to try to engage savers with guidance. So, how could the FCA re-think this?
The obvious answer is to nudge the customer before they have made their minds up; before or while they are doing their research. After all, if you were embarking on a mountain climb you would want me to tell you the virtues of certain crampons while you were planning your route. Not when you hit the foothills and are already committed.
There is a ready-made opportunity to do this. Providers could offer to make an appointment with Pension Wise for customers when we issue the first wake-up pack around their 50th birthday. Any earlier, and it would probably have less meaning for them. Later, and they may have already accessed benefits. But this could be a Goldilocks moment.
Introducing the nudge when it is not linked to a transaction means there would likely be stronger take-up of Pension Wise guidance. This is the point we first proactively signpost pension access to customers, and there would be no incentive for the customers to opt out or dismiss it simply to avoid delays and progress the benefit request.
But it is not just about getting in early. The FCA’s regulatory approach is habitually centred around the point of access. This is a historical hangover from the days most people made the irrevocable decision to buy an annuity.
Those days are long gone. Nudging people towards guidance that can help them make difficult decisions throughout the drawdown journey sounds sensible. Providers can do that through communications. But by changing the strict framework the FCA can make it easier for providers to offer personalised guidance to pension customers, both before and after the point of access.
At the very least, the FCA needs to hit the pause button on this regulatory process and regroup – with the support of The Pensions Regulator – to explore when nudging can make the biggest difference. The Maps research last year only looked at the ‘how’, it should now take a step back and research ‘when’ is best.
That way, unadvised customers get the right help at the right time.
Rachel Vahey is senior technical consultant at AJ Bell
