Gareth James: A stronger nudge, a push or an anvil on your head?

Gareth James looks a the regulator's drive to increase Pension Wise take-up through its stronger nudge strategy...

Plenty of focus has recently been devoted to the indirect impact that the FCA’s ‘stronger nudge’ proposals may have on the appetite of savers to seek out or retain the services of financial advisers.

It’s possible that the requirement for providers to offer to book an appointment at Pension Wise when non-advised customers approach them to take benefits or, for over 50s, transfer their pension to another provider may have an impact on the demand for advice. My own view is that the take-up of appointments, and therefore the impact, amongst those already using, or considering, the services of a financial adviser will be negligible.

A little surprisingly, less attention has been devoted to the direct impact of the FCA’s consultation, and importantly the DWP’s proposals to require providers to insist that individuals attend a Pension Wise appointment before completing a transfer in certain circumstances.

Perhaps this lack of attention is because both sets of rules are still subject to consultation, though I’d be very surprised if an outcome of either consultation is a practical change in the impact on advised customers.

That’s all booked for you

Looking at the FCA’s stronger nudge consultation first, the FCA is proposing that providers will have to offer to book Pension Wise appointments for customers in two circumstances – firstly on any occasion that they look to crystallise further benefits, and secondly when they ask to transfer benefits to another pension if they’re 50 or over.

The application of the rules to advised clients is not perfectly clear from a simple read of the rules, but works as follows:

  • If the approach to take benefits or make a transfer is made by a customer rather than their adviser, the firm must encourage the customer to use Pension Wise and make the offer to book an appointment.
  • If, during this process, it becomes clear that the customer has received advice, the firm can allow the customer to move on from the Pension Wise nudge and on to the delivery of risk questions and warnings (where required).
  • If the initial approach is made by you as the adviser, rather than by your client, the pension provider is not required to give the stronger nudge to your client.

So the key here is that, if your client’s pension provider requires the benefits/transfer application to be made by your client, the stronger nudge process will at the very least begin. Whereas if the provider allows you to submit the application on your client’s behalf, there is no requirement on the provider to give the stronger nudge.

‘Even more intrusive’

The DWP’s anti-scams transfer proposals may potentially be seen as even more intrusive by some advisers. As things stand, when any transfer is being made to a personal pension not administered by an insurance company, even if advice has been given on the transfer, the transferring provider will potentially choose to ask the transferring member a number of scam-identification questions. 

If the provider isn’t happy with the responses then, depending on whether the answer highlights an ‘amber’ or ‘red’ flag, they will either insist the client attends a Pension Wise appointment before proceeding with the transfer, or refuse to allow the transfer at all.

Providers won’t be required to ask the questions to identify these flags in all transfers to non-insured personal pensions. 

They can allow the transfer to proceed if they don’t have pre-existing concerns based on what they know about the receiving provider. However, given that failure to ask the questions in a case which ultimately turns out to be a scam could result in liability falling on the transferring provider, it won’t be a surprise to see some firms taking a risk-averse approach and asking the ‘flag’ questions in all cases. I’m aware of more than one provider already strongly considering implementing that policy.

What advised clients will think, having paid for advice in relation to a transfer, of being asked questions which might appear to cast doubt on the service provided by their adviser, particularly if they’re required to make a Pension Wise appointment in order to proceed, or even see the transfer blocked, is not too difficult to judge.

Gareth James is head of policy at AJ Bell