Savers accessing pensions for first time to be “nudged” towards guidance

New regulations from the Financial Conduct Authority (FCA) will see people accessing their pensions for the first time directed to seek advice from the Pension Wise service.

The regulations, which come into force on 1st June 2022, will mean pension providers must direct savers to the service. The primary reason for the new rules is FCA concern that few savers currently use Pension Wise or seek financial advice before beginning to draw from their pensions.

The new rules will apply to all pension providers and stakeholders with interests in the pensions and retirement sector.

New rules driven by consultation outcome

Confirmation of the new regulations follow a consultation earlier this year. Pension providers now must:

Around half of the consultation responses received by the FCA stated that the current “nudge” to receive guidance, outlined under the Financial Guidance and Claims Act 2018, comes too late in the process. Other suggestions included that savers who had already taken advice be exempt from receiving another “nudge.” However, the FCA believes all savers should have access to Pension Wise, irrespective of whether they have previously received guidance.

Where savers refuse guidance from Pension Wise on the grounds of having already received advice elsewhere, the FCA wants pension providers to explain they could still benefit from receiving additional advice, as their circumstances may have changed.

The FCA said: “Our new rules will increase consumer awareness of impartial Pension Wise guidance at the point they wish to access their pension savings and make it more likely that they take up this guidance. Taken together with our previous work, this should support decision making when consumers access their pension benefits or transfer their pension in order to access their benefits.”

Could the new rules have gone even further?

While these new regulations are widely seen as a positive, there are some who believe the “nudge” towards guidance could come even sooner.

Helen Morrissey of Hargreaves Lansdown told Your Money: “The timing of this nudge towards guidance will be all important – the rules say the nudge should come as part of the application – i.e. 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.

“These measures only cover people with a contract-based pension scheme, and we are waiting for DWP to publish final rules for trust-based schemes. It’s important that DWP looks to apply these rules consistently across all types of pensions.”

Meanwhile, Tom Selby of 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.”