On the go: The “stronger nudge” towards guidance recently proposed by the Department for Work and Pensions is inadequate on its own and will impact members too late in the process to have a real effect, according to industry experts.
Speaking at a Work and Pensions Committee hearing, experts from LCP, Aon, AJ Bell and Legal & General all agreed that giving a nudge after a member has already made the decision to access their pension would be far less effective than one given while they were still in the decision-making process.
Pensions Expert reported at the beginning of July on the DWP’s consultation into its “stronger nudge”, geared towards increasing the uptake of guidance, where it proposed to require trustees and managers to ensure that individuals have either received or opted out of receiving appropriate pensions guidance before proceeding with their application to access their pension.
Stephen Lowe, group communications director at Just Group, explained that “14 out of every 100 pension pots that are accessed benefit from impartial Pension Wise guidance”.
“The government has stated that it would like that to be more what it describes as a normal behaviour, normal usage,” he noted, with a goal to boost that figure to seven in 10 people.
The “hard data” resulting from the trial of the stronger nudge suggests that it will “move that 14 out of 100 to approximately 22 out of every 100. That leaves a 50 per cent gap in those that would benefit from Pension Wise’s impartial guidance”, Lowe said.
Rachel Vahey, senior technical consultant at AJ Bell, warned, however, that a myopic focus on Pension Wise would not provide the kind of solutions people need.
“What we end up doing is saying guidance is only coming from Pension Wise, and that’s the only way someone can access it, and that’s the only way we can measure it,” she said.
“I think that’s a mistaken view, we should be thinking much wider. Some people will want Pension Wise guidance, and that’s to be encouraged. But we also need to think about how we can help people in much broader ways, so this has to be a (…) holistic discussion about guidance.”
The problem with the stronger nudge as proposed is its timing, Vahey continued. The stronger nudge is given once people have already made up their minds about accessing their pensions, which is the “wrong timing for it”.
“We need to encourage people to think and get guidance before they make that final decision,” she said.
“Focusing on this one point [in time] is missing the bigger picture: that people need help before, and during [the decision-making process], not [just] once they’ve made the decision.”
Laura Myers, partner and head of defined contribution at LCP, agreed, arguing that having a stronger nudge after the decision has been made can add to the impression that “we [the industry] just put obstacles in the way. I think people get really frustrated with pensions, and as an industry we don’t really help them”.
Colin Clarke, head of product policy strategy at L&G, concurred. He told the hearing: “Research we’ve done shows people approaching retirement are effectively looking for the path of least resistance. That stronger nudge has been (…) set at a point that is in the middle of a claims process.
“If you did that [earlier], it would probably be more powerful in educating them to think deeper about the options available.”
