PensionsNov 9 2020

DWP guidance nudge claims are ‘pure spin’, says MP

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DWP guidance nudge claims are ‘pure spin’, says MP

MPs have criticised the Department for Work and Pensions’ (DWP) latest proposals on guidance nudges, saying they lacked determination and would not go far enough to increase uptake.

In the latest hearing of the Pension Schemes Bill, Neil Gray, a Scottish National Party MP, labelled the DWP’s claim that a stronger nudge by providers would significantly increase take up of Pension Wise guidance “pure spin”.

Mr Gray said: “[...] the cited Maps (Money and Pensions Service) stronger nudge trials showed only a very small increase in the number of people who actually went on to have a Pension Wise appointment.

“The outcome of the stronger nudge trials was to get people to Pension Wise appointments in less than one in ten cases. It moved them from 3 per cent to 11 per cent. 

“A stronger nudge is just not going to be enough, not by a long chalk.”

Last week (October 28), the DWP said it would look to publish regulation which will require providers of workplace pensions to signpost guidance whenever savers look to access or transfer their pots. But it stopped short of making guidance mandatory.

At the point at which a saver indicates they would need to take guidance, providers will be expected to incorporate booking an appointment with Pension Wise into the process.

But Stephen Timms, chairman of the work and pensions select committee, said the policy "lacks determination” and was “nowhere near enough” given “hardly anyone" was using Pension Wise currently.

He brought an amendment to the Bill which would see savers contacted five years before retirement age with a scheduled date and time for a pensions guidance appointment, or the option to reschedule or defer this appointment.

Mr Timms said: “Auto-enrolling people to Pension Wise appointments fits the bill. Starting five years ahead of eligibility will get people thinking while they have time to reflect on their options and make their choices. An impartial session will set them on the right tracks and correct misunderstandings. 

“Repeating the invitation each year until the appointment is taken up or is opted out of will equip savers with very important information to think ahead effectively for their financial needs in retirement.”

He added: “We cannot sit back while Pension Wise continues to be an excellent service taken up by hardly anybody. The government and regulators must end their indifference on this. 

“Aspiring to an 11 per cent take-up simply is not enough. We need auto-enrolment into a service that enables better outcomes from pension savings.”

But the amendment was withdrawn as pensions minister Guy Opperman pointed out that there was “already a multitude of interventions” to contact savers and offer guidance at an earlier stage. 

He explained that within two months of their 50th birthdays, members received a single-page summary document that points to pensions guidance, as required under the Financial Services and Markets Act 2000. 

He also pointed out that from 2021 the Financial Conduct Authority’s investment pathways will be in place presenting savers with four options for how they want to use their drawdown pot.

Mr Opperman said: “It is not the case that there is no engagement prior to the drawdown.”

Transfer rules

Mr Timms also pushed for the bill to allow trustees to refuse to make a transfer in cases where red flags are raised and a scam is suspected.

Under current rules trustees have a legal duty to carry out a transfer of a saver's cash equivalent transfer value within a six-month deadline and if they refuse they could be at risk of legal action.

Mr Timms argued this had to be changed so that providers and trustees could put a stop to scams without the fear of being taken to court.

But this amendment was also withdrawn by Mr Timms after the pensions minister raised concerns about timing and the degree to which it overlapped with other work being done in this area.

Mr Opperman said: "Clearly we wish to prevent, as far as possible, any scams or misdemeanours taking place, but that will have to be done through primary legislation and secondary regulations.

"It seems to me, as this process has been developing, that there is a degree of symmetry between the work that stakeholders—the PSIG and others—are doing, the work that this house is doing by passing primary legislation, and the specific drafting and codification of the regulations, which will be the nuts and bolts that will take this forward."

He added: "The process of dealing with a transfer, what particular points apply, how it is a trustee operates due diligence and how it is that that process works, is genuinely a complex process.

"Detailed provisions have to be gone through, working with the various parties going forward.

"The point I am trying to make is that we agree with the principle of the amendment, but it should not be on the face of the Bill; we should accept that clause 125 provides the framework, and we then need to deal with the regulations going forward."

The bill is due for report stage and a third reading on November 16.

amy.austin@ft.com

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