UK defined contribution master trust NEST has called on the Financial Conduct Authority (FCA) to “carefully” consider risks posed by the nation’s Open Finance initiative.
In a release, NEST strongly agrees that extending open banking-like data sharing and third-party access to a wider range of financial sectors and products has the potential to deliver positive benefits to consumers.
“We support making pensions easier for our members to understand and engage with. Across the board, more visibility and connection across diverse types of products can help people looking to engage with and make active choices about their finances,” NEST said.
“This might deliver not just tangible financial gain but could also address some of the stress and anxiety many feel when making financial decisions,” it added.
The master trust noted, however, that bringing Open Finance to pensions has particular risks and challenges.
“Automatic enrolment (AE) has been hugely successful in bringing millions of people into pensions savings, many for the first time. However, ultimately the majority of people are not engaged with their pension,” it said.
Zoe Alexander, NEST’s director of strategy, said: “When it comes to understanding pensions, there is a clear knowledge gap between consumers and institutions. But research shows that simply giving people more information isn’t the answer. Ease, speed and emotional triggers will nearly always be stronger drivers.”
NEST’s recent research disclosed there are some basic misconceptions around pensions: “For example many don’t know their pension is invested, and do not anticipate the complex choices they will have to engage with in order to turn their pension pot into a sustainable income at retirement”.
“Decisions around pensions are complex, and small changes can have long term impacts,” it said.
NEST’s statement is in response to the FCA’s call for input on Open Finance, focussing on new rules designed to promote value for money for members of workplace personal pension schemes.
NEST highlighted the need for a regulatory framework that protects savers.
“This framework should learn from past mis-selling scandals, should shield savers from scams, and take account of behavioural biases which can lead to poor decisions, for example it could include appropriate friction to slow down choice making and allow for greater time in review and evaluation, to help members make the right decisions and take the right actions,” the master trust noted.
Alexander added: “The right regulation and protections are vital to make sure consumers can reap the benefits of Open Finance without putting people at greater financial risk. This might include, for example, adding an element of friction into the process to slow down decision making in certain important areas like pension transfers and fund switches.”
The call for input by the FCA closes today (1 October).
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