By Fyona Murphy, Senior Consultant at Hymans Robertson
The decline of Defined Benefit pensions, coupled with the introduction of pensions freedoms in April 2015, leaves an ever-increasing number of individuals with Defined Contribution (DC) pots which they will need to rely on to be their main source of income in retirement. Unfortunately, many individuals will find it difficult to navigate the decision-making process of how to use these pots to manage the risks that they face. The problem here is further compounded by the lack of available advice, even for those willing and able to afford to pay, which many are not.
All of this has not gone unnoticed; it has been an area of focus across the industry and indeed within government and for the regulator:
Stronger nudge to pensions
The Department of Work and Pensions (DWP) published regulations on pension guidance, which came into force on 1 June 2022. These were designed to strengthen the ‘nudge’ for members to access guidance relating to their options on funds held in DC Pension Schemes. In order to meet these regulations, a scheme is required to:
Offer to book a Pension Wise guidance appointment on behalf of the member and, where the member accepts this offer, take reasonable steps to book the appointment.
Where the member does not accept the offer, or where the scheme is unable to book a suitable appointment despite having taken reasonable steps, the scheme must provide the member with details of how to book an appointment themselves.
Explain to the member that they cannot proceed with the application to access or transfer their benefits unless they confirm to the scheme that they have received appropriate pensions guidance, or the member opts out of receiving guidance by giving them an opt-out notification.
Explain to the member that they can only opt out of receiving appropriate pensions guidance by giving the Scheme an opt-out notification.
Continue to deliver the “stronger nudge” in all subsequent interactions with the member about their application until the member either confirms that they have received appropriate pensions guidance or gives the Trustees an opt-out notification.
The stronger nudge to pensions efforts is a good example of the increased coordination between regulators with the FCA consulting at the same time with it’s own stronger nudge to pensions guidance in PS21/21. We welcome this trend as we recognise the benefits of having both occupational and trust-based schemes being regulated in line with the contract and personal pension market, not least for assisting with individuals’ understanding of their pensions.
Understanding pension choices
Continuing their focus on this issue, June also saw the DWP launch their call for evidence on helping savers to understand their pension choices. This aims to understand the type of support that pension savers need when making decisions, how they wish to be supported in the lead up to making these decisions, the point at which they access their pension and once they have started using their savings in retirement. Similarly, the joint call for input on the pensions consumer journey by The Pensions Regulator (TPR) and the FCA is a great example of the increasingly joined up efforts of the industry for the benefit of the consumer.
Consumer Duty
The FCA Consumer Duty final guidance is due in July and challenges the industry to think about how exactly we are meeting identifiable consumer needs by:
Always putting good customer outcomes at the centre of businesses; and
Focusing on the diverse needs of their customers at every stage.
The implementation of the new Duty should mean that consumers can make good financial decisions and have greater trust in firms. We also see good support for initiatives such as the upcoming pension engagement season which is a cross industry effort to raise awareness and increase engagement of individuals with their pensions.
Looking forward we see a whole range of further activity including the eagerly awaited introduction of pensions dashboards, simplified statements and TPR’s value for money framework.
The opportunity
Given all of this, it is time for providers to consider their product offerings and customer journeys to ensure they can access this market in a way that meets the needs of the customer and requirements of the regulators. We know that this is an area where individuals struggle to make sense of a complex set of choices and must ensure that as an industry, we are delivering products that meet customer needs, in a way that people can engage with throughout retirement as those needs change.
Perhaps the area we see this most is in providing the tools that allow users to explore how much they have in their pension pots, what income they can reasonably take if they want this income to be sustainable for their life, while using test and learn technology to engage users and ensure they feel empowered to take actions over their own retirement incomes.
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