Opinion  

The stronger nudge on pensions will be of little help to savers

James Jones-Tinsley

James Jones-Tinsley

From June 1 certain pension providers and pension trustees officially became known as ‘nudgers’.

What afforded them this accolade?

It was a statutory instrument entitled “The Financial Guidance and Claims Act 2018 (Commencement No 9) Regulations 2022”, which brought into force provisions of that act from June 1, outlining the need to refer individuals to pensions guidance in certain circumstances.

In other words, pension trustees and providers are now required to give a “stronger nudge” to those members who are accessing their defined contribution funds for the first time to undertake an appointment with Pension Wise.

Pension Wise, which has been available since April 2015 with the introduction of the pension freedoms, offers an individual a free 45-minute session outlining the different ways in which their pension funds can be drawn.

The Financial Conduct Authority state that their nudge rules apply to retail clients who are either “accessing their pensions savings using a pension decumulation product, or transferring rights accrued under their existing pension scheme to another pension scheme for the purpose of accessing their pension savings using a decumulation product”.

But why the need to nudge? The reality is that, despite positive feedback, only one in 33 of those eligible have taken up an appointment with Pension Wise to date.

The government and regulators ideally want all those drawing their pension funds without first seeking regulated financial advice to be placed in an informed position before deciding the best way to take those benefits.

Therefore the origins of that aim, which can be traced back to The Financial Guidance and Claims Act 2018, are laudable at face value.

There are, however, two main issues with the regulations, which we pointed out in our response to the FCA’s consultation paper on the subject last year.

The first issue is the timing of the nudge. Rather than directing members to Pension Wise at the point of contacting us to take their benefits, we argued that it would be preferable to deliver the nudge at an earlier point, for example when issuing the member’s first 'wake-up pack' at age 50.

As most members will not be able to draw their benefits before age 55, this gives them plenty of time to meet with Pension Wise, undertake associated research, and hopefully obtain financial advice.

The second issue is the FCA’s requirement that providers should offer to arrange an appointment with Pension Wise for their member, if requested to do so.

Rather than the potential for endless to-ing and fro-ing between the provider, the member and Pension Wise to agree a convenient date and time for the appointment, we suggested that a leaf be taken out of the NHS’ book by reference to the online vaccination appointment process that was successfully rolled out during the Covid-19 pandemic.