Stronger nudge rules could knock adviser–client relationships off course

Charlene Young

Charlene Young

When it comes to retirement planning, top of my wish list would be for more people to get financial advice and experience the benefits that paying for financial planning advice can bring.

Secondly, for those who are unable or unwilling to, they should at least have some basic guidance available to them on their options. That guidance might empower them to make the right decision for their circumstances or, even better, encourage them to seek advice themselves.

The Financial Conduct Authority published new rules just before Christmas on how providers should deliver a “stronger nudge to pensions guidance”. By pensions guidance, they mean Pension Wise, and the objective of the stronger nudge is to increase the number of guidance appointments attended.

Measures include providers having to offer to book guidance appointments and not processing applications to access pensions and, in some cases, transfer benefits until an appointment is made or an opt-out received.

These measures could certainly help with the second item on my wish list, but I have two big concerns with how the rules are drafted. The first is the timing of the required stronger nudge, and the second is that providers will have to give the stronger nudge to all clients, including clients of financial advisers.

Contrast this with the rules on investment pathways for drawdown, which were specifically targeted to non-advised customers only. Why no specific exemption for advised clients this time?

Despite concerns raised by AJ Bell and other respondents at consultation stage, the FCA policy statement confirms: “We continue to consider that the nudge should be delivered to all consumers. This includes those who have previously received guidance or advice as it may still be beneficial to these consumers.”

Turning to the timing – the FCA stipulates the stronger nudge should be delivered when someone has “made a decision in principle about how they want to access their pension savings”. This includes those over age 50 who are making a transfer from one DC pension scheme to another, leading to questions about whether the process might cause transfer delays.

More than half the respondents to the FCA’s consultation raised concerns on the timing. If somebody has already considered their options and made a decision, it is far too late in the process to prompt any change in their selected option, as people will just want their instruction to be carried out promptly.

There is a danger that savers will view the stronger nudge as providers putting a barrier in front of their wish to access their pensions, precisely at the time they have already made plans for the money, and have psychologically, if not actually, spent it.

These regulations have missed a real chance to de-link the stronger nudge to guidance from the point of access and deliver it at the earliest point someone could get a Pension Wise guidance appointment. That is at age 50. Most of today’s 50-year-olds will have seven years before the earliest date they can access their pensions (age 57 in 2028) and at least seven years to take real action to save more towards their desired retirement.