Please forgive my addition to the title of the recent Statement of Policy issued by the Department for Work & Pensions (DWP). What they have suggested is a positive step forward in trying to help pension scheme savers navigate the complexity of the retirement choices ahead of them. However, if you read the Annex to the Statement, it's clear that helping members make better informed retirement choices will require more than just a guidance “Nudge”.

The DWP’s Statement confirms that trustees and managers of occupational pension schemes will be required to refer members to Pension Wise guidance and to facilitate guidance appointments at the point when a member is seeking to access their retirement savings flexibly (whether that’s by transferring their pot out of the scheme or directly accessing it). When a member does come to access their savings, before acting on the member’s request, the trustees will need to confirm and record that the member has received appropriate guidance or has actively opted out of guidance.

The DWP is keen for guidance to become a natural part of a member’s pension journey to reduce the risk of pension scheme members making bad choices (or poorly informed choices) when accessing their retirement savings. The number of Pension Wise appointments recorded in recent years has been low, but is increasing. Even with the level of increases reported in the trial, a significant number of members still did not book an appointment so there is still a problem to tackle.

Education is key

Helping members make better choices at-retirement is a complex area. First and foremost, it comes down to education. It is imperative that members are educated on their pension choices and the implications for tax, beneficiaries and broader financial outcomes, long before it comes to the point that they are required to actually make a choice, ideally from around age 45. Members can be overwhelmed by their options, so finding a way to build this education up over time will help. 

Every individual’s financial circumstances and priorities are very different, and as we have seen through 2020, they can change materially with a change in circumstances. Guidance may add value, and even more so if offered in conjunction with a good ongoing education approach, but a number of savers consider their wealth more holistically than just pensions so there will always be a need for some members to take advice. 

Even if you get the education, guidance and advice right, you still need to ensure that your pension scheme members have access to the best financial solutions for them to maximise their outcomes (e.g. competitive and well-designed drawdown strategies, access to enhanced annuities etc).

I would encourage you to review your member communication journey and think through all the education touch points you have. Review all the decisions that your different members should be working through and think about when is best to offer support.

There will be a consultation in due course, and the Statement of Intent did note that the FCA will be looking at this area as well, so we expect to see more positive changes. However, that doesn’t mean you shouldn’t review your at-retirement strategy just now and start thinking about how this will all fit together. 

If you would like to learn more about supporting your members to and through retirement, please feel free to get in touch with me or your usual Hymans Robertson Consultant.