Final stronger nudge rules for occupational schemes

On 17 January the Department for Work and Pensions (DWP) published its response to the consultation on proposals to require trustees of occupational pension schemes to nudge members and survivors towards obtaining guidance from Pension Wise before accessing flexible benefits (broadly money purchase and cash balance benefits). The new rules will apply in relation to members seeking to access these benefits on or after 1 June 2022 directly from the scheme or via a transfer. Most of the proposals are in line with the Financial Conduct Authority’s (FCA) rules for personal pension providers, which also apply from 1 June 2022.

The original proposals were set out in this e-alert: Stronger nudge to pensions guidance. As well as bringing in these changes a little later than originally proposed, the response and final regulations include some changes and clarifications that should be helpful to schemes.

These include:

• For members who follow a postal or online journey to accessing benefits, trustees can provide a telephone contact number with the onus on members to call it if they wish the trustees to book the appointment on their behalf.
• Trustees can provide a nudge earlier in the process, at the point the member first indicates a desire to access benefits. The response confirms that quotes can be provided without triggering the nudge.
• Where members confirm – orally or in writing – that they have received the nudge from a prospective receiving scheme and either obtained or opted out of guidance, or a member is intending to transfer benefits to a FCA-regulated scheme, the trustees of the transferring scheme need not provide the nudge. However, they can do so if they wish. Similarly, schemes receiving a transfer can provide a nudge, but do not have to do so.
• Only transfers where the member intends to access flexible benefits trigger the nudge. Previously only transfers to consolidate benefits or transfer to a scheme that does not provide flexible benefits were exempted. The regulations confirm that the nudge does not apply to transfers for survivors, nor to members, who are aged under 50.
• For all transfer requests, members can opt out of obtaining guidance without having to do so in a separate communication. Similarly, a separate opt out is not required where a member qualifies for a serious ill-health lump sum, or if the member states that guidance or regulated advice has been received in the previous 12 months, Otherwise, for applications to access flexible benefits, any opt-out has to be through a separate communication, confined to the purpose of opting out, and not part of the initial application process. The DWP refers to this as the enhanced opt out requirement. The member can provide this communication orally, digitally for online journeys or in writing. Any online opt out must be via a separate form.

The DWP also states that member accessing benefits through ill-health, or as a survivor, can obtain guidance from Pension Wise even if they are not yet 50. It has also decided not to try to combine Pension Wise with pensions safeguarding measures (against scams) for transfers despite calls from some respondents to do so.

The amendments from the original proposals are likely to be welcomed by trustees although the 1 June 2022 effective date remains a challenge when looking to change existing processes, systems and procedures. The Pensions Regulator will publish non-statutory guidance.

Contacts

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Mark Dowsey

Director

email Email phone +44 (0)1737 274535

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Kirsty Cotton

Director

email Email phone +44 (0)1737 274496

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