The Financial Conduct Authority (FCA) has announced that it intends to introduce new rules to require pension providers to nudge scheme members towards Pension Wise before they take their defined contribution (DC) savings.
The consultation and proposed changes only apply to FCA regulated firms. However, the FCA has worked closely with the Department for Work and Pensions (DWP) which is in the process of setting out regulations for occupational pension schemes.
The new measures set out in a consultation, CP21/11, aim to increase the take-up of the free impartial guidance (Pension Wise) available from the Money and Pension Service (MaPS).
The provisions, set out in law (the Financial Guidance and Claims Act 2018), require the FCA to make rules for personal pension providers to nudge their members towards Pension Wise, and they also require the DWP to do the same for occupational pension scheme members.
The proposals include that when an individual has decided, in principle, how to access or transfer to access their pension savings, the new rules will require FCA regulated pension providers to:
The FCA will then require providers to confirm and record whether the individual:
Providers will be unable to proceed to the next stage of the retirement or transfer process until they are able to confirm which one of the above three bullets applies.
Additionally, there is a suggestion that where a member has not attended or booked an appointment for Pension Wise, they should be nudged again. If the scheduled appointment date has not passed, the provider should remind them of this date and confirm that the member’s application cannot be processed until after this date, unless the member formally opts out.
The requirement to nudge members who are transferring only applies where the purpose of the transfer is to access benefits and as a proxy the proposal is that this should apply where members are over 50 at the time of the transfer request. It is proposed that the requirement to nudge will apply to whichever provider a member contacts to initiate the transfer, so this could be the transferring or receiving provider. The consultation closes on 29 June 2021, and it is expected that there will be a final Policy Statement from the FCA before the end of the year.
Capita comment
This increased contact with the member will have cost implications for providers as well as possibly delaying processing in some cases. In addition, it is likely that the FCA will want data from providers relating to the take up of the guidance and opt outs and therefore system development to enable data capture and subsequent reporting will most likely be necessary. It is our view that some members will be frustrated by these delays. One thing that needs to be considered by the Government is whether MaPS have the capacity to handle a surge in appointments.
There is acknowledgement that the majority of members who took advantage of Pension Wise as part of the trials had already determined what they were going to do and therefore the guidance was arguably of limited benefit. Although the trials demonstrated that a nudge produced an increase in uptake of the guidance it was still only around 11% (compared to 3% in the control group) and this raises the question of whether the need for guidance should be at an earlier stage in a member’s decision-making process, perhaps, more of a mid-life MOT.