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.
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.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.
The use of Pension Wise will remain low if appointments are not automatically booked.The Work and Pensions Committee also called for automatic appointments to maximise the use of Pension Wise and make the obtaining of guidance for DC funds, before accessing them, the norm.
However, when the final regulations were issued around the turn of the year, the timing of the nudge remained as per the consultation paper, and the concept of automatic appointments was also rejected.
The government’s rationale behind this decision was that it was not appropriate to set a target figure for the uptake of Pension Wise, as the decision to take guidance is a personal one, affected by an individual’s circumstances.
The WPC say that the use of Pension Wise will remain low if appointments are not automatically booked, and I agree with their view.
I would also contest that the delivery of the nudge remains ill-timed, as members typically contact us for their funds when they already have a specific – and potentially urgent – need to draw some or all of their benefits.
Our insistence on directing them to a Pension Wise appointment before they can access their money could be perceived by them as an inconvenient hurdle, thereby increasing the exercising of their right to opt-out of such an appointment, especially if it might be weeks away.
Time will tell but based on the regulations that took effect from June 1, I remain doubtful that the requisite ‘stronger nudge’ will strengthen the uptake of pensions guidance going forwards.
James Jones-Tinsley is self-invested pensions technical specialist at Barnett Waddingham
