Govt pushes ahead with Pension Wise 'stronger nudge'

The Department for Work and Pensions (DWP) has confirmed new regulations requiring occupational pension schemes to present guidance as a routine part of accessing pension savings, which are expected to come into force from 1 June 2022.

The stronger nudge to pension guidance will require pension schemes to offer to book a Pension Wise appointment for the individual, unless they wish to opt out of receiving guidance, in line with rules from the Financial Conduct Authority (FCA).

"We want guidance to be available to savers when making decisions about accessing their pension pots," Pensions Minister, Guy Opperman, commented.

“These new measures support savers and further this government’s commitment to ensuring people across the country have the necessary support and information they need to make informed choices about their financial futures.”

The government initially published plans for the stronger nudge in 2020, after behavioural trials on behalf of the Money and Pensions Service (Maps) revealed that savers were more likely to seek guidance after receiving a ‘stronger nudge’ from their provider.

In light of industry feedback, however, the government has now adapted the regulations to “better reflect” different customer journeys, clarifying, for instance, that in a postal or online journey, the offer to book may be satisfied by providing a phone number for beneficiaries to call and details on how to book.

“Trustees and managers will not be required to organise the booking of an appointment and coordinate diaries via a purely postal or online route,” it said.

The government has also acknowledged concerns that the changes could put barriers in the way of beneficiaries making decisions to consolidate their pensions, confirming that it will therefore disapply the requirement to opt out in a communication solely for the purpose of opting out in relation to transfer requests.

“This means that, whilst beneficiaries in scope will receive the stronger nudge on requests to transfer flexible benefits, they will not be required to opt out of Pension Wise guidance in a separate interaction,” it confirmed.

This is expected to better reflect the government goal of referring beneficiaries to Pension Wise as early as is practical, whilst recognising that for some beneficiaries transferring a pot from age 50 a Pension Wise appointment may not be beneficial.

However, the industry consultation also raised concerns that customers could receive the stronger nudge to pension guidance repeatedly for the same transfer application.

In light of this, the DWP has disapplied the requirement for trustees and managers of ceding schemes to deliver the stronger nudge, where the receiving scheme has already delivered this, and the beneficiary has opted out or received Pension Wise guidance.

The changes have been welcomed by industry experts, with interactive investor head of pensions and savings, Becky O’Connor highlighting the government response as “balanced”.

“Pension Wise is a useful but under-used service. In a world where financial advice from an IFA is unaffordable for many people, it’s important that people who stand to benefit most from Pension Wise actually use it," she said.

“As a result of this consultation, more people who need it will most likely choose to get some guidance over how to manage their retirement savings rather than none.

“Importantly, the choice over whether to take action following the stronger nudge remains with the individual. Small pots are also included in the ‘nudge’.

“Some may still consider the approach ‘nanny state-ish’, but we know from the success of auto-enrolment that proactivity and pension planning do not always go together. Pensions is one part of our financial lives where a bit of handholding and ‘nudging’ can go a long way.”

The Pensions Regulator (TPR), which recently urged pension scheme trustees to prepare for the requirements, has also welcomed the new regulations on the stronger nudge.

“In our corporate strategy, we made a commitment that savers could expect us to enhance the quality of their savings outcomes. I believe helping savers make decisions on when and how to access their DC pots is central to good outcomes," TPR executive director for regulatory policy, analysis and advice, David Fairs, commented.

“These new duties may require changes in scheme processes, which is why trustees and their administrators should be preparing now ahead of the regulations coming into force later this year.”

Industry experts previously argued that the proposals do not go far enough, with Work and Pensions Committee chair, Stephen Timms, calling for automatic pension guidance appointments to be introduced.

However, the government rejected this, since estimating that such a system could cost more than £45m, which would be borne by levy payers unless made a taxation cost.

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