Regulation post Covid: Part 1 (64): 2/12 - Pension "nudge" dilemma

The FCA's changes to pension regulations, published yesterday, designed to "nudge" customers towards using Pension Wise, make sense provided they are not the end of the road. The regulator makes considerable play of the fact that it's considering further changes, working closely with the DWP, TPR and MaPS, but there is already some scepticism that this will lead to much, and the FCA's ability to follow through be watched carefully.

As I've written before, pensions is one of the FCA's most challenging areas of responsibility. This results from three main factors: the amount of wealth concentrated in the sector; its own acknowledged mistakes in the original implementation of pension freedoms; and the four-way split of responsibility for regulating the sector.

All three are in play here - the wealth concentration means supervisors are already busy; its own history potentially inhibits the FCA from imposing new constraints on the freedoms it introduced; and the need to reach consensus with other regulators (not least the DWP) will inevitably slow the pace of change and could also result in a lowest common denominator approach.

What I haven't found yet (but may have missed) is an assessment of how effective the FCA believes this "nudge" will be. For example, what percentage/number of consumers do they expect to take up the offer of a Pension Wise appointment? Would this be enough? How many change their mind as a result? While this would only be an interim measure of the overall outcome, it's a useful one and should be easy enough to track.

Incidentally, part of the reason such benefit measures don't exist/are hard to find is the absence of a cost benefit analysis. This is because the new regulation is the result of legislation, and the relevant Act "amends FSMA so that the requirement to carry out a CBA (under section 138I) does not apply". But the HMT/DWP impact assessment for the Act doesn't seem to cover it either. Hopefully this isn't the shape of things to come under the future regulatory framework.

For now, the FCA seems to have landed on a good interim solution. But it looks like it will either have to move further or be able to convince the sceptics that this "nudge" is the right answer.

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