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Home Business Differences in nudge to guidance rules risk confusion and disengagement

Differences in nudge to guidance rules risk confusion and disengagement

by maria gbaf
  • Under these rules providers and trustees of trust-based schemes must offer to book a Pension Wise appointment for anyone looking to access their defined contribution pension.
  • These changes have the potential to boost uptake of guidance and help retirement decision making.
  • This follows the FCA publishing rules covering contract-based pensions in December.
  • There are key differences between the approaches. While the FCA says the nudge should come at the point of application, the DWP says the nudge can be delivered earlier.
  • Members of trust-based schemes must also opt-out in a separate communication whereas FCA rules enable members to opt out when they are communicated with by their provider.

DWP has published its response to the July 2021 consultation on the Stronger Nudge to Guidance rules Government response: Stronger Nudge to pensions guidance – GOV.UK (www.gov.uk)

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:

“The stronger nudge to guidance has the potential to really help people make more informed retirement income decisions and boost awareness of Pension Wise. However, we need the rules to be as closely aligned between trust and contract-based schemes as possible to avoid confusion, and even disengagement.

Rules around opting out of guidance are a case in point. People may have retirement savings across both trust and contract-based schemes and differing rules about what is classified as communicating an opt-out can prove an unwelcome complication.

There’s also a key difference as to when the nudge can be delivered. While the FCA opted to go with delivering the nudge when the customer applies to take a retirement income, the DWP enables providers and trustees to deliver it earlier. While the FCA did not preclude the possibility of providers deciding to deliver a nudge earlier it set the point of application as its minimum which many providers may opt for.

When Hargreaves Lansdown participated in the behavioural trials with the Money and Pension Service it was 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 was never going to be as successful as contacting someone who is still exploring their options so it is a huge positive trustees and managers can deliver the nudge earlier in the process.

It will be interesting to see whether take-up of guidance appointments differs across trust and contract-based schemes as a result of these differences.”