When the rules were relaxed on pension holders having access to their pension pots, an event such as the COVID pandemic and its consequences were not considered. In 2020 figures from the ABI (Association of British Insurers) showed that the number of people accessing their pension as a form of flexible income grew by 56% between April and September of that year.
This example, though caused by an extreme event, illustrates two things. Firstly, how useful it is to be able to access funds when needed, something which would not have been possible before the rule changes, but secondly, that the ease with which the pension pot can be accessed for immediate use or to move to another savings provider is a cause for concern if pension holders are unaware of all the pros and cons.
The government is therefore rightly concerned that whilst accessing pensions pots should be simple and easy to do, it wants pension holders to be more aware of their options so that they are fully informed before moving or accessing their money.
Currently, pension providers are only obliged to tell their customers that free and impartial advice is available from Pension Wise, the service promoted by the government to help individuals aged 50 and over with a defined contribution pension, understand the options available to them.
In new rules which have just been set out, the Department for Work & Pensions (DWP) is proposing that pension scheme managers and trustees make sure the individual has either received or opted out of receiving Pension Wise guidance, before allowing their application to proceed.
Pension schemes would also be required to offer to book a Pension Wise appointment on the individual’s behalf. If the appointment is declined, the DWP is proposing that pension holders will have to formally opt out, before they can proceed to the next step.
The DWP is right to make individuals pause and give them the option to be better informed before taking the plunge. However, when the consultation is complete, it is to be hoped that the final rules will not be too draconian in respect of Pension Wise appointments and end up increasing extra administration costs for pension providers and inhibiting access to funds for transfer or for immediate use.