Could automatically booking impartial Pension Wise guidance sessions help both savers and the head of the financial regulator sleep better at night?

Last week Financial Conduct Authority chairman Charles Randell told MPs on the Treasury Select Committee that poor pension decisions were top of his worry list. He said:

“This issue of people making poor choices when exercising the freedoms and responsibilities that have been put on them… is probably the issue that I worry about most of all.”

Both Charles Randell and FCA chief executive Nikhil Rathi, who was also questioned, were at pains to point out the high level of protection given to members of defined benefit schemes, in terms of early warning systems and beefed-up adviser scrutiny as well as the advice requirement for transfers of more than ￡30,000.

For those with defined contribution pensions there was far less detail about how the FCA intends to strengthen consumer protection by increasing usage of free, impartial and independent guidance. We shouldn’t forget that this is two years after being handed the task by provisions in the 2018 Financial Guidance and Claims Act.

The regulator is working with the Department for Work and Pensions which recently announced its plan to boost guidance usage for members of workplace schemes through ‘a stronger nudge’. The problem is that trials showed the nudges failed to increase usage among nearly nine in 10 of those it was tested on and was less effective on those who can benefit most from guidance.

If the regulator is serious about helping pensions savers – and its chair– to sleep well at night then it needs to be far more ambitious. Mr Randell said that the safeguards to make people think carefully about accessing cash and taking guidance need to be “as strong as they humanly can be”.

The remedy needs to toughen up the protection offered to DC scheme members to close the gap with the higher standards enjoyed by DB members. At the moment we are living in a pension apartheid world where one side must take advice but the other gets signposts and nudges.

It is as if it is somehow more heart-breaking for a DB member to lose their life-savings than it is for a DC pension saver.

One method of levelling up the protection would be to emulate the success of automatic enrolment into workplace pensions by automatically booking Pension Wise appointments for pension savers. This was an idea proposed in an amendment to the Pension Schemes Bill currently being debated by MPs but which the government has so far resisted.

Auto-enrolment works because it streams people into a system designed to benefit them regardless of their level of financial engagement or capability. People don’t need to know in advance what it is or how it can help in order to persuade them to sign up. Instead they are included unless they chose to opt out.

Like automatic enrolment into pensions, we believe the majority would stick with it and be glad that they do.