Pension providers will have to give customers a stronger nudge towards taking guidance when they decide to access their savings from June next year.
Pension Wise offers free, impartial guidance to people about their pension options.
Providers will be required to refer customers to Pension Wise guidance, explain what its purpose is and in most cases offer to book a Pension Wise appointment, the Financial Conduct Authority (FCA) said.
The pension freedoms reforms have made it easier for over-55s to do what they want with their pension savings, rather than having to buy a retirement annuity which gives them a fixed income.
We have published final rules requiring firms to implement the stronger nudge to Pension Wise guidance.https://t.co/CuVZiKSYSC
— Financial Conduct Authority (@TheFCA) December 1, 2021
The FCA said it has received feedback on ways that the take-up of Pension Wise could be increased and it is working closely with the Government and regulators to consider this feedback and whether more changes to its rules are required.
Any further changes would be the subject of future consultation.
Pension experts said the timing of the nudge is important – and some people may have already made up their minds by the time they are nudged.
Jon Greer, head of retirement policy at Quilter, said: “The question remains whether the point of taking pension benefits is the right time to nudge.
“Arguably it should happen earlier given people do a lot of thinking and research before they contact the provider and may be more receptive to guidance at that earlier stage.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “These measures are good news and will help those who want more help with their retirement options get the support they need.
“The timing of this nudge towards guidance will be all important – the rules say the nudge should come as part of the application – ie a last call to action before a consumer commits to accessing or transferring for the purpose of accessing their pension savings – but we would argue it needs to come earlier than this.
“Hargreaves Lansdown participated in the behavioural trials with the Money and Pension Service, these trials found the earlier the nudge came in the process then the more likely the person was to take up the appointment.
“Waiting until a point where someone may already have decided how they want to take their retirement income is never going to be as successful as contacting someone who is still exploring their options.”
Tom Selby, head of retirement policy at AJ Bell, said: “In many cases this will be too late in the process, with the saver having already made a decision and likely to be focused on getting their tax-free cash.
“More testing needs to be done to consider when nudges to guidance work best, looking at the entire retirement savings journey.”
Steven Cameron, pensions director at Aegon, said it is “essential that Pension Wise can cope with an increase in demand for appointments, without delays for customers.
“With the introduction of nudges on June 1, the timescales are tight, particularly as Pension Wise has also just become responsible for delivering guidance ahead of transfers if the pension provider suspects a possible scam.
“Based on the numbers of people who’ve recently been accessing their DC (defined contribution) pensions flexibly, if Pension Wise guidance does become the norm, they could see an increase of 50% in appointments.”
Dr Yvonne Braun, director of policy, long-term savings and protection at the Association of British Insurers (ABI), said: “Our research highlights that over half – 52% – of all pension pots are accessed without either impartial guidance from Pension Wise or regulated financial advice, even though these are some of the most complex financial decisions people make in their lifetime.
“We welcome the stronger nudge towards guidance, but to transform this situation so that everyone receives support, broader changes are necessary. This must include enabling providers to support customers and help prevent harm, which is where the FCA should focus their policy action next.”