DWP: Nudge or fudge ?
Plans to nudge more pension savers to take up their entitlement to free, independent and impartial guidance were published last week. They are hardly likely to spark a stampede.
The Department of Work and Pensions proposals are based on what it calls “successful trials” with pension providers that demonstrated “a significant increase” in pension savers who hadn’t taken guidance in the previous 12 months going on to being nudged into attending a Pension Wise appointment.
I am indebted to Dominic Lindley (@DominicLindley) for producing his graphic representation of the results of the two nudges tested compared to a control group.
You could say appointment take-up was nearly four times higher due to the nudges. Put another way, the nudges had no success at getting 89% of people to attend an appointment.
As well as not influencing enough people, the trials also did not influence the right people in terms of having less effect on those with less pension knowledge, exactly the group who need support the most.
A further weakness is that the DWP’s proposed nudges leave guidance being offered as a ‘backstop’, at the point when many pension savers already have concrete plans to take their cash and so are more likely to view guidance as an obstacle rather than a helping hand.
Guy Opperman wants guidance to be a natural part of the journey that savers embark on when making decisions about their pension pots. That’s an ambition that we strongly support but progress could at best be described as desultory.
Five years on from pension ‘freedom and choice’ and we have rising numbers accessing pensions early and falling victim to scams. Surely we should aspire to offer them more support than the most gentle of nudges?
This is the view of Stephen Timms, chair of the Parliamentary Work and Pensions Committee, who said about the DWP’s proposals: “Even on its own evidence, though, it seems unlikely to deliver a major increase in the numbers of people who take guidance from Pension Wise.”
He has responded by tabling an amendment to the Pension Schemes Bill that aims to deliver guidance before members can access their cash. It would ensure pension savers are contacted five years before becoming eligible to receive benefits with a stated date and time for their impartial Pension Wise appointment, with re-bookings for those who defer.
As Mr Opperman, the Minister responsible for both Pensions and Financial Inclusion will know, a system that automatically includes everyone is likely to reach more people than one that expects people to voluntarily opt in.
This approach would both build on the success of automatic enrolment into workplace pensions which has very low opt out rates, and also complement it by ensuring millions more savers receive support when they come to take their cash.
Our research found that only 4% – one in 25 – people aged 45-54 with a defined contribution pension would opt out if an appointment had been booked for them. As someone once said: “Aim high and at least you won’t shoot yourself in the foot.”