Taking guidance should become the default option before savers can access their pension pot, Stephen Lowe, group communications director at Just, has said.
Mr Lowe said a “nudge” into guidance was not robust enough, stating the industry should instead rethink the way in which people are directed to seek guidance before they access their pension pots.
He said: “We know that guidance sessions work. User evaluation research shows it improves people’s knowledge and understanding of their options and gives people more confidence they can avoid scams.
“Making use of the government’s free and impartial guidance service at decumulation must become the ‘norm’, just as auto-enrolment has made accumulation a social norm.”
But Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, warned if savers were pushed too hard this could ultimately drive up advice costs.
He said: "It should not be made compulsory yet unless evidence suggests that many are at risk of living in poverty due to extravagant spending and large pension withdrawals.
"Compulsion often leads to frustration from the clients and potentially massive backlogs – furthermore, this means more resources are needed to meet the demand, and it’ll have to be paid for by the whole industry, which leads to clients paying a higher fee for financial advice."
Under the Financial Guidance and Claims Act 2018, the Financial Conduct Authority and department for Work and Pensions are developing rules to ensure savers are signposted and have easy access to guidance when it comes to their retirement.
Trials arranged by the Money and Pensions Service (Maps) to see how this would work tested two potential routes to guidance when savers looked to access their pension pots.
One was to get their provider to make a Pension Wise appointment for them, while the other was to transfer them to a member of the Pension Wise booking team who could explain the offer and make an appointment.
Maps found 11 per cent of savers attended an appointment within six weeks of receiving the provider nudge, compared with less than 3 per cent who went to Pension Wise directly.
While Mr Lowe said this was promising, he argued the regulator must be more ambitious when it comes to making rules.
He said: “Asking people to opt in to a guidance session has been tried and has failed for the last five years. The regulator must now introduce a more ambitious solution that results in the significant majority, and not a minority benefiting from impartial guidance.”
Mr Chan agreed it was important for savers to be given a “stronger nudge” for guidance, saying it was an opportunity to "educate savers of their retirement options, the tax implications, the need to think longer-term and dispel any myths they may have about pensions".
He added: "Also, it serves as a good foundation for a potential meeting with financial advisers should they require one after, and it’d save advisers and the clients time during subsequent meetings."
amy.austin@ft.com
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