Pensions  

Guidance nudges will cause problems, pension industry warns

Guidance nudges will cause problems, pension industry warns

The proposed rules requiring trustees and scheme managers to “nudge” individuals to obtain guidance when accessing their pension will cause administration problems and could lead to poor member experience, industry experts have warned.

The Department for Work and Pensions has proposed a form of auto-enrolment for pensions guidance, whereby trustees will have to ensure individuals have either received or opted out of receiving guidance before accessing or transferring their pension.

While they are currently required to tell members that free and impartial advice is available, and tell them how to access it, the government has argued that more should be done to “nudge” members into making use of it.

“Pension Wise has been shown to be helpful to those considering how to access their pension pot,” a DWP consultation on the matter noted, adding that nine in 10 customers (91 per cent) agreed the government guidance service “helped them to consider their pension access options more thoroughly”.

Industry puzzled

In its response to the consultation, which closed on Friday, the Society of Pension Professionals expressed several concerns in relation to the proposed rules.

President Fred Emden said the trade body was surprised by how different the DWP’s and Financial Conduct Authority's approaches were for trust-based and contract-based arrangements.

“Differences may cause confusion to individuals who have more than one type of pension and will create additional expense for those firms who administer both trust-based and contract-based arrangements,” he stated.

One of the differences is that under DWP rules, when considering a pension transfer it is the ceding scheme which has to deliver the stronger guidance nudge to the member, while under the FCA proposals, it is the scheme which is contacted first.

Emden said: “Many transfers are made under the Origo transfer system. Here, the individual makes the transfer request to the receiving scheme and very often has no communication with the transferring scheme.”

Renny Biggins, head of retirement at The Investing and Saving Alliance, also highlighted the need for “consistency in the requirements,” adding that the alignment of both regulatory regimes “should be considered a priority”.

He said: “Industry and government should be considering how to simplify and streamline processes, ensuring that the interest of the consumer is always at the heart of all decisions, with consistency achieved across occupational and individual defined contribution scheme types.

“A collaborative review of the entire consumer journey is required to ensure that consumers are receiving the correct support and nudges at the right time to avoid a disjointed pensions journey.”

If the current difference in approaches from the DWP and the FCA is to be maintained, then “time is of the essence as regards the need for providers to prepare”, Emden said.

“Final regulations are therefore needed urgently, or with delayed commencement, especially if the rules are to differ for trust and contract-based schemes,” he added.

'Unworkable requirement'

The DWP is also proposing that scheme administrators will be in charge of organising and booking the Pension Wise appointments.