Taking guidance should become compulsory before savers access their pension pot, Stephen Lowe, group communications director at Just, has said.
Mr Lowe said a “nudge” into guidance was not robust enough, stating the industry should instead rethink the way in which people are directed to seek guidance before they access their pension pots.
He said: “We know that guidance sessions work. User evaluation research shows it improves people’s knowledge and understanding of their options and gives people more confidence they can avoid scams.
“Making use of the government’s free and impartial guidance service at decumulation must become the ‘norm’, just as auto-enrolment has made accumulation a social norm.”
But Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, warned making guidance compulsory could ultimately drive up advice costs.
He said: “It should not be made compulsory yet, unless evidence suggests that many are at risk of living in poverty due to extravagant spending and large pension withdrawals.
“Compulsion often leads to frustration from the clients and potentially massive backlogs. Furthermore, this means more resources are needed to meet the demand, and it’ll have to be paid for by the whole industry, which leads to clients paying a higher fee for financial advice.”
Under the Financial Guidance and Claims Act 2018, the Financial Conduct Authority and department for Work and Pensions are developing rules to ensure savers are signposted and have easy access to guidance when it comes to their retirement.
Trials arranged by the Money and Pensions Service (Maps) to see how this would work tested two potential routes to guidance when savers looked to access their pension pots.
One was to get their provider to make a Pension Wise appointment for them, while the other was to transfer them to a member of the Pension Wise booking team who could explain the offer and make an appointment.
Maps found 11 per cent of savers attended an appointment within six weeks of receiving the provider nudge, compared with less than 3 per cent who went to Pension Wise directly.