The Financial Conduct Authority has published final rules requiring firms to implement the 'stronger nudge' to Pension Wise guidance, and will look at other ways of boosting guidance amid very low take-up rates.

From June next year, pension providers will have to give customers a stronger nudge to use Pension Wise guidance when they decide to access their savings.

Providers will be required to refer customers to Pension Wise guidance and explain the nature and purpose of it. Controversially, they will also be required to offer to book a Pension Wise appointment in most cases, or give information to those who want to book their own appointment.

The new rules, which follow a May consultation, implement legal changes made by parliament whereby government hopes to improve the take-up of Pension Wise; so far, only a small proportion of consumers accessing their pension pot for the first time have used its guidance, raising concern among policymakers and other stakeholders.
 

Industry is not universally in favour of the stronger nudge, suggesting that policymakers should consider why guidance is necessary instead, and simplify the pensions system.
 
Proof that the stronger nudge will help close the guidance gap is also lacking, raising questions over the effectiveness of the new rules. While trials showed that a stronger nudge increases guidance take-up more than three-fold, with current take-up among contract-based pension savers at just 3% this would still only lead to around 1 in 10 (11%) taking guidance. 

Despite the low take-up rate, MPs had voted down a proposal to make Pension Wise appointments mandatory, with some fearing it could become a tick-box exercise. 

 

 

Aside from the stronger nudge, starting in early 2022 the FCA wants to explore other ways to improve the take-up of guidance, which is perhaps unsurprising given the poor evidence base that a stronger nudge would boost take-up to more substantial levels.

These other initiaties "will consider the pensions guidance needs of consumers more holistically at different points in their pensions journey, including in the run‑up to accessing their pension savings," the response to the consultation reads. It could involve other pensions guidance by MoneyHelper at an earlier point in the savings journey, and the FCA points out that this work links to its joint efforts with the Pensions Regulator on the pensions consumer journey.

As part of these additional considerations, the FCA said it will look at feedback to its discussion areas and pension consumer journey call for input and will. If it decides to implement any additional measures on guidance, a further consultation would be launched, it said.

The stronger nudge rules the FCA is implementing apply to contract-based schemes; for trust-based schemes, the Department for Work and Pensions consulted in July.

The FCA's regime differs slightly from the proposals made by the DWP in the opt-out provisions as it allows consumers to opt out when first contacted and does not say how this should happen, while the DWP’s proposals require scheme members to opt out through a separate active communication. For firms offering both trust and contract-based pensions, the FCA said its rules allow them to adopt the DWP’s proposed opt-out process where appropriate.