The DWP has published its response to a July 2021 consultation on draft regulations for delivering a stronger ‘nudge’ to pensions guidance when individuals seek to access, or transfer for the purpose of accessing, their flexible (DC) pension benefits in occupational pension schemes[1].
Amongst other things, the regulations confirm the new requirements on trustees will come into force in June 2022 and apply to applications on or after 1 June 2022.
What is the background to ‘Stronger Nudge’?
The regulations introduce the ‘Stronger Nudge’ to pensions guidance and aim to increase take up of pensions guidance provided by Pension Wise or its delivery partner (Pension Wise guidance).
Trustees need to ensure that members and their survivors with rights or entitlements to flexible (DC) benefits (relevant beneficiaries) have either received, or opted out of receiving, appropriate pensions guidance before proceeding with their application to receive, or transfer with the intention of receiving, flexible benefits.
The regulations[2] will require trustees to present taking pensions guidance as a normal part of the application process and require members (and other relevant beneficiaries) to make an active choice if they wish to opt out of receiving guidance.
The regulations apply to the trustees of an occupational pension scheme where a scheme member or a survivor in relation to the member (relevant beneficiary), who has a right or entitlement to flexible benefits under the scheme, makes an application to transfer pension rights or start receiving pension benefits. The trustees must:
- refer the beneficiary to appropriate pensions guidance, and explain the nature and purpose of the guidance; and
- before proceeding with an application, ensure the beneficiary has either received the guidance or opted out of receiving it.
Trustees will need to record when a beneficiary confirms they have received Pension Wise guidance as a result of the Stronger Nudge requirements, and when a beneficiary opts out.
The government response and final regulations
There are some important differences between the original proposals and the final regulations; in particular:
- Trustees can deliver the Stronger Nudge on either the receipt of an application or an earlier communication in relation to an application. Also, the regulations have been modified to “better reflect” that the application may take different forms.
- The previous requirement to opt out in a communication solely for the purpose of opting out in relation to transfer requests has been removed.
- In relation to transfer requests, trustees of ceding schemes do not need to deliver the Stronger Nudge where the receiving scheme has already done so. Also, where beneficiaries are transferring without the intention of accessing flexible benefits (e.g., just for consolidation), it will not be necessary for them to be referred to Pension Wise guidance or to opt out of receiving such guidance.
- There is clarification that trustees do not need further evidence, beyond the verbal or written confirmation of the beneficiary, that they have either received appropriate guidance from Pension Wise or opted out of receiving such guidance.
- There are changes to ensure those who qualify for a Serious Ill Health Lump Sum are exempt from enhanced opt-out requirements.
The Money and Pensions Service (MaPS) is working on a Pension Wise digital appointment to meet increased take-up of the service and to encourage more savers to access the service through lower cost channels.
Trustee action
As with the changes to cash equivalent transfer value rights that came into force at the end of November last year, trustees should discuss with administrators how processes, forms, etc. will be updated to implement the Stronger Nudge in less than four months from now.
[1] Government response: Stronger Nudge to pensions guidance - GOV.UK (www.gov.uk)
[2] The Occupational and Personal Pension Schemes (Disclosure of Information) (Requirements to Refer Members to Guidance etc.) (Amendment) Regulations 2022 (legislation.gov.uk)