DWP issues ‘stronger nudge’ to pensions guidance consultation

While trustees and scheme managers are currently required to tell members that free and impartial advice is available, and tell them how to access it, the government has argued that more should be done to “nudge” members into making use of it.

“Pension Wise has been shown to be helpful to those considering how to access their pension pot,” the consultation noted.

“Nine in 10 appointment customers (91 per cent) agree that Pension Wise helped them to consider their pension access options more thoroughly. A similar proportion (89 per cent) felt they learnt something new from using the service.”

While the use of Pension Wise is already increasing — take-up in 2019-20 was 29 per cent higher than in 2018-19 — the DWP noted that a significant number of defined contribution pots “are being accessed without the use of advice or guidance”. 

“The Financial Conduct Authority’s ‘Retirement income market data 1’ shows that in 2019 to 2020, 50 per cent of all pots accessed in the contract-based retirement income market were accessed without advice or guidance,” it said.

The Money and Pensions Service commissioned the Behavioural Insights Team to study the impact of a “stronger nudge”, and the results showed this approach “was successful at increasing the number of pension holders booking and attending a Pension Wise appointment compared with business as usual”. 

The consultation stated: “Approximately 14 per cent of pension holders who did not report having had guidance before agreed to book an appointment. This was 11 percentage points more than the control group, where the proportion was 3 per cent. 

“Approximately 11 per cent of pension holders attended a Pension Wise appointment, which was 8 percentage points more than in the control group.”

The consultation proposes amending the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 to include the “stronger nudge” by requiring trustees and managers to ensure that individuals have either received or opted out of receiving appropriate pensions guidance before proceeding with their application. 

“The goal of this is to present taking pensions guidance as a normal part of the application process and to require members (and other relevant beneficiaries) to make an active choice to opt out of receiving guidance,” it stated.

“As part of this, we are proposing that trustees and managers explain the nature and purpose of Pension Wise guidance and facilitate the booking of a Pension Wise appointment for the customer as part of the application process, removing the inertia introduced by having to book their own appointment.

“We also propose introducing a separate opt out procedure to encourage relevant beneficiaries to seriously consider the value that guidance has and ensure that, where beneficiaries decline guidance, this is an active choice on their part,” it explained.

The intent is for the “stronger nudge” to be delivered to “all relevant beneficiaries”, aged 50 or above, who contact their scheme to request access to their benefits, or who request to transfer those benefits “with the intention of accessing their pension flexibilities”.

The consultation added, however, that schemes “will not need to deliver the nudge to beneficiaries transferring for the sole purpose of consolidation, as we are seeking to ensure individuals either receive or opt out of appropriate pensions guidance before making a final decision about how to access their pension flexibilities”.

The “stronger nudge” requirement will only apply to members looking to transfer out of a scheme. It will not be required when members are looking to transfer in.

Under the proposed system, trustees and managers should not take additional steps to progress a member’s application “until a beneficiary confirms they have received Pension Wise guidance or opts out of receiving such guidance”.

Michael Ambery, partner at Hymans Robertson, said: “We believe signposting would likely improve outcomes for individuals and ensure products meet an individual’s needs, as well as providing awareness of other pensions and savings products.

“Signposting would also provide much-needed awareness and education on options at the point of retirement, and stop a generation from sleepwalking into making default decisions that may be detrimental.”