Retirement

Nudge, Nudge, Need Help With Your Pension?

Psychologists have teamed with financial firms to nudge pension savers into making positive decisions about their retirement.

Now, the government wants to encourage retirement savers to have a free chat with the Pension Wise service before accessing their money under early pension access rules.

The aim is for savers without a financial adviser to take free, impartial guidance from Pension Wise before drawing down on their retirement savings after a strong nudge

What The Stronger Nudge Means To You

Pension providers must offer you a free appointment with Pension Wise to discuss your future spending plans before you retire.

The new rules demand the offer of an appointment when you are aged 50 or older and intend to take money from a UK workplace or private pension.

However, making an appointment is optional.

What Is Pension Wise?

Pension Wise is a free and independent government retirement advice service.

The nudge is to make retirement savers more money savvy, especially as millions of pounds of pension savings are lost to scammers.

From June 1, under the new nudge rules, providers must:

  • Refer savers to Pension Wise when they request to access their pension funds
  • Explain what Pension Wise does
  • Off to book an appointment for you or tell you how to book an appointment yourself

The new rules follow extensive trials and consultation which revealed more savers booked appointments to discuss their finances when ‘nudged’.

Tests show bookings almost quadrupled when providers nudged their customers. The average take-up rate without the nudge is three per cent. However, the acceptance rate increased to 14 per cent during the trial.

Around 11 per cent attended the ‘nudged’ appointment – a rise of eight per cent on the ‘unnudged’ group.

Pensions minister Guy Opperman said a nudge helps people make informed decisions about spending their savings.

Will you get a nudge?

Pension savers over 50 with direct contribution plans are nudge targets.

Payments in retirement from direct contribution or DC pensions are based on fund value rather than final salary or length of service. DC pensions include workplace schemes, personal pensions and self-invested personal pensions (SIPPs).

The service excludes savers with defined benefit pensions, which are generally workplace schemes based on how long someone has worked for an employer and their salary at retirement.

If you are consolidating pensions but drawing no cash. Similarly, you won’t get a nudge if transferring a DC pension to a DB scheme as you cannot get early access to the fund through a DB pension.

What happens at the appointment?

The Pension Wise brief is to help savers understand their pension options at different life stages.

An appointment can last for 45 to 60 minutes to cover:

  • How much you have saved into your pension and how you plan to spend the money
  • The tax implications of withdrawing money from your fund
  • Points to consider before taking the money
  • How to protect yourself against pension scams

You will need your personal and state pension forecasts, a list of other savings and investments and a household budget showing regular bills and spending.

Pension Wise is for guidance only and will not recommend any financial products or services.

Opting out of Pension Wise

Retirement savers can opt out of meeting Pension Wise – for example, any saver with a financial adviser does not have to take up the offer.

Your pension provider or adviser will ask if you want an appointment, so just tell them no.

You’ll also need to tell your provider if you have booked your own appointment.

Booking a Pension Wise session

Appointments are either face-to-face or over the telephone. You can book an appointment online or by phone.

For a booking, go to the Money Helper website or call 0800 138 3944.

What can I do with my pension money?

Pension freedom rules introduced in 2015 changed the way people can access and spend their retirement savings.

The restrictions apply to DC pensions based in the UK. Although QROPS (Qualifying Recognised Overseas Pension Scheme) are DC pensions, they are not UK-based, so they are exempt from the regulations even though they may offer early access.

Pension drawdown options

OptionTax-free cash?Regular income?Guaranteed income?Can I run out of money?
AnnuityUp to 25% of fundYesYesNo
Fixed drawdownYesNoYes
Take entire pot?NoNoYes
Take lump sums?25% of each withdrawalNoNoYes

Pension Nudge FAQ

When do the early access rules change for savers?

Pension access rules will stay the same, but the lower age for accessing the scheme will go up from 2028. From them, the lower age rises from 55 years old to 57.

Pension drawdown is the most popular way to withdraw money from a DC pension under early access rules. Drawdown lets savers keep their money invested while taking money when they wish. There’s no limit on how much cash you can take from the fund each year, although tax might become an issue. This option lets savers take money as they wish while leaving the fund invested.

What is a nudge?

A nudge is a behavioural influence to offer sensible choices to people rather than an intervention like tax breaks or subsidies.

Do nudges work?

Increasing amounts of data psychologists collect suggests nudges significantly influence people’s financial choices. One study found that 62 per cent of nudge projects returned statistically higher success results than control samples.

Do pension freedoms affect my state pension?

No, the state pension in the UK is unaffected by pension freedoms. The guidance rules only apply to direct contribution or DC schemes.

Is Pension Wise guidance helpful?

Government research shows that 9\1 per cent of savers who discussed their retirement finances with Pension Wise found the guidance useful.

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