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.
Girish Menezes, head of pensions administration at Premier, called this an “unworkable requirement”.
He noted that normally, trust-based schemes’ administrators deal with their members via email, web and post, and that “arranging meetings will be a very time-consuming addition to their processes, almost definitely introducing telephone-based outreach”.
He said: “If the DWP proposals go ahead, pension schemes will find themselves with a burdensome duty: calling everyone over 50 looking to access or transfer their pension, convincing the member that they are not scammers, verifying the member’s identity, asking them to check their diaries, checking Pension Wise’s diary and eventually scheduling the meeting.”
Considering all the delays this process will entail, Menezes argued it was “a resource commitment schemes won’t be able to afford”.
He added: “Pension Wise, along with preferred independent financial advisers, should be promoted to members looking to access their pensions using the pension flexibilities. However, setting up appointments is not a viable option.”
However, with the consultation detailing that schemes on a purely digital journey can embed the Pension Wise booking tool into their website, or provide a link to this, not all industry specialists have concerns in this area.
Darren Philp, director of policy and market engagement of Smart Pension, said in his response to the consultation: “We welcome the flexible approach being proposed by DWP in that providers can offer to book appointments or to facilitate members making their own appointments.”
Poor member outcomes
With regards to the overall policy, which determines that the guidance nudge should be delivered when a member makes an application to access or transfer pension benefits for the purpose of accessing pension flexibilities, Philp said he had “residual concerns that the proposed intervention could be delivered too late to really benefit people’s decision making”.
Emden is also worried about the implementation of the new rules, considering they could “lead to a poor member experience when transferring or claiming benefits”.
He said: “We anticipate the proposals will result in real-time delays in members transferring their benefits between schemes and having their retirement benefits settled.
"This will result in frustrated and upset members who perceive that their pension scheme, and the pensions industry in general, is putting obstacles in the way of them doing what they want with their pension pot.”
Philp added he would support further trials being run to test whether “earlier interventions as part of the wake-up process are more effective.
“This will also have the added benefit of people being nudged on the basis of all their pension holdings,” he concluded.
maria.espadinha@ft.com
