Requiring pension providers to give consumers a stronger push towards guidance is a “plan set up to fail”, according to Stephen Lowe, group communications director at retirement specialist Just Group.
His comment follows an FCA proposal to make firms “nudge” consumers towards Pension Wise, a free and impartial government service that helps people understand the options for their pension pots.
What are the changes?
Currently, pension providers are required to signpost consumers to the service and encourage them to seek appropriate guidance or advice.
But take up remains low.
The watchdog’s proposals are intended to give consumers a further opportunity to use the service.
It means that, when a consumer has decided how to access their savings, a provider must:
- Refer them to Pension Wise guidance,
- Explain the nature and purpose of Pension Wise guidance, and
- Offer to book an appointment.
Marginal change
But for Just Group’s Lowe, his belief that “this is a plan set up to fail […] is acknowledged by the fact this consultation is appealing for more ideas to increase guidance usage, particularly earlier in the retirement journey when people are still making up their minds”.
He added that “the evidence shows the ‘stronger nudge’ will only deliver a marginal change in Pension Wise use”.
“The government has set an ambitious objective for the regulator but has also effectively tied its hands by refusing to let it consider genuinely transformational measures such as automatic enrolment into pension guidance sessions from age 50.”
Lowe added: “Our own research found that fewer than 4% – one in 25 people – aged 45-54 with defined contribution pensions would opt out of a guidance session that has been booked for them.”
Unintended consequences
But not everybody is as pessimistic.
AJ Bell senior analyst Tom Selby said: “The stronger nudge proposal outlined by the FCA today focuses explicitly on the point at which savers indicate they want to access their pension, with an extra onus on providers to offer to book appointments on behalf of customers.
“It will be crucial in designing this process for booking appointments that there are not any unintended consequences, such as savers facing delays that they’re unwilling to accept in receiving benefits.”
That being said, Selby believes that the focus of government and the FCA “would be better placed encouraging guidance well before someone says they want to access their pension”.
“In reality many people have already made up their mind about what they want to do at this point in time, and so will be less susceptible to such nudges.”
No to-ing and fro-ing
It is a sentiment with which Quilter’s head of retirement policy, Jon Greer, concurs.
“Typically, when people come to access their pension pots – and particularly small pots – they have already got a very set idea of what they want to do with that money and feel that they don’t need any guidance to help them achieve their desires.
“Often this is because they feel they have done their own research or they have already taken financial advice.”
He said the direct appointment booking system for providers for would remove a friction point in the process, describing it as “a step in the right direction” but stressed that it “must be workable so there is not a to-ing and fro-ing”.
The consultation, which closes on 29 June, can be found here.
