Resource concerns raised over stronger nudge 'logistical nightmare'

Industry experts have welcomed the intention behind recent government plans to encourage more savers to take financial advice or guidance, but concerns have emerged over the resources that will be required from both Pension Wise and administrators.

The Department for Work and Pensions (DWP) recently consulted on proposals that would give defined contribution (DC) savers a "stronger nudge" to take appropriate pension guidance, with trustees and managers to facilitate the booking of a Pension Wise appointment.

However, in response to the consultation, Premier head of pensions administration, Girish Menezes, warned that the "centrepiece" of the DWP’s proposal is “an unworkable requirement for administrators of pension schemes to organise and book appointments between scheme members looking to access their pensions and Pension Wise.”

He explained: “In general, administrators of trust-based pension schemes deal with their members via email, web and post. Arranging meetings will be a very time consuming addition to their processes, almost definitely introducing telephone-based outreach.

“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 scamsters, verifying the member’s identity, asking them to check their diaries, checking Pension Wise’s diary and eventually scheduling the meeting."

Menezes said that in many cases savers will not answer the phone, or will be reluctant to discuss their pension on the basis of a cold call.

In addition to this, he argued that "many may not need advice at all if consolidating small pots", estimating that the proposals are expected to "double or triple the amount of time spent dealing with each request, which is a resource commitment schemes won’t be able to afford".

He continued: “The flawed premise in the DWP’s plan is the reliance on a model for this new system drawn from insurance companies.

"Insurance companies typically call members when they retire or transfer because they want to promote flexible retirement products and services. Trust-based pension arrangements rarely speak to their members over the telephone unless the member is chasing delayed cases.

“Pension Wise, along with preferred IFAs, should be promoted to members looking to access their pensions using the pension flexibilities. However, setting up appointments is not a viable option."

The resources required from administrators are not the only concern, as Aegon pensions director, Steven Cameron, warned that whilst the government initiatives are “well intentioned”, some individuals will perceive having to seek Pension Wise guidance as delaying them being able to access their pension funds, making it "imperative" that Pension Wise cope with demand for appointments, “within one or at most 2 weeks”.

“To avoid wasting member or Pension Wise time, it will be important not to nudge individuals to Pension Wise where there’s no benefit,” he stated. “Aegon sees no point in this nudge if the individual is already receiving advice, which will give far more comprehensive support. And there’s a case for excluding micro pots of under say £100.

“Unnecessary appointments will not only increase the burden on Pension Wise but will also mean additional costs for the pensions industry which funds the service.

“We must also avoid those accessing multiple pension pots ending up with repeat nudges or multiple appointments. Schemes and providers will want the flexibility to take a streamlined approach if delivering both a stronger nudge and also requiring the individual to obtain scam guidance."

Cameron also cited figures from HMRC suggesting that there could easily be 25,000 individuals accessing their DC pension flexibly for the first time each quarter, emphasising that whilst some individuals will ‘opt out’, Pension Wise needs to be "resourced up" in order to become the norm before accessing pensions flexibly,

“That could mean putting in place cost-effective plans to be able to cope with a sharp increase in demand," he continued.

"If nudges and scam consultations come anywhere close to 100,000 additional appointments each year, Pension Wise might face a 50 per cent increase compared to the 205,000 interactions recorded for 2019/20.”

In addition to capacity concerns, The Investment and Savings Alliance has reiterated previous industry warnings that more consistency is needed between the DWP’s stronger nudge proposals and those outlined in the Financial Conduct Authority’s (FCA) consultation, arguing that it is "essential to industry and consumers that there is consistency in the requirements".

“This will remove complexities where transfers span across both regulatory regimes and ensure nudges achieve their objective," Tisa head of retirement, Renny Biggins, explained.

He continued: “The alignment of these should be considered a priority. We need to consider how effective these nudges are and whether they can be delivered at more meaningful stages and critically, that they take place prior to key retirement decisions.

“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 DC 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.”

However, he also stressed that Tisa recognised the importance of consumers accessing impartial guidance or regulated advice prior to making retirement decisions and "strongly support ways" in which it can enhance the framework to achieve better consumer outcomes.

Indeed, despite the concerns, industry experts have expressed broad support for the intention behind the proposals, with Hymans Robertson partner, Michael Ambery, highlighting the consultation as "very welcome".

He continued: “We fully support any assistance that can help members with decision making as they approach retirement.

"It is imperative that nudges, guidance and signposting continue right up to the point of retirement as support is both timely and critical, and the repercussions of poor decisions can be significant.

“Consumers are currently bombarded by a deluge of options as they approach retirement and find it difficult to make decisions.

"This can lead to individuals retiring at a different date to the one which they had planned, and can lead to default to encashment. It can also result in them being in a post-retirement investment or solution that does not provide value or meet their individual needs, or those of their dependents.

"We believe signposting would improve outcomes, provide education and awareness, and prevent a generation from defaulting to detrimental decisions.”

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