59: DWP publishes consultation on stronger nudge regulations
The DWP has published a consultation on draft regulations which will require trustees and managers of occupational schemes to give a stronger nudge to pensions guidance when members apply to access flexible benefits (draft Occupational and Personal Pension Schemes (Disclosure of Information) (Amendment) Regulations 2021). Currently trustees and managers are required to provide a statement that free and impartial guidance on pensions flexibilities is available, that members should access this and consider taking independent advice, and to provide details of how guidance can be accessed. The use of Pension Wise is increasing (with a 29% increase in appointments from 2018 to 2019), but the government is concerned that a significant number of DC pots are still being accessed without advice or guidance.
Key aspects of the proposed stronger nudge procedure include:
- trustees and managers will have a duty to ensure that scheme members aged 50 or above have either received guidance or opted out of receiving it before accessing or transferring their benefits to take advantage of pension flexibilities;
- this requirement will not apply where a member is transferring benefits into a scheme, or for the sole purpose of consolidation;
- before proceeding with an application, trustees and managers must explain the nature and purpose of Pension Wise guidance and offer to book a Pension Wise appointment. This information can be provided by phone or post, or via a Pension Wise booking tool embedded into a scheme’s website;
- if the offer to book an appointment is declined, trustees must provide details of how to make the booking and explain how to complete an opt-out notification;
- if a member wishes to book the appointment themselves, details of how to make the booking must still be provided;
- the government has deliberately not defined what constitutes an ‘application’ in the regulations, so that schemes can decide precisely when the nudge process is triggered. However, the consultation notes that this should be as early as possible, and that ideally members should be directed to Pension Wise guidance before they make a final decision about accessing their benefits;
- members must make an active choice to opt out of receiving guidance in a separate communication which can be a phone call, email, letter or a digital form;
- trustees and scheme managers must not proceed with an application or quote unless they have received confirmation of attendance at a Pension Wise appointment, or an opt-out. According to the consultation, this would not prevent them sending out additional information packs or generic information on decumulation options;
- exemptions are proposed for members who have already received either Pension Wise guidance or regulated financial advice on their application in the previous 12 months, and for those applying for a serious ill-health lump sum. The consultation is seeking views on whether there should also be an exemption for small pots, although there are no plans to include this at present;
- a separate consultation is being conducted on draft regulations which will require trustees and scheme managers to refer members to a scams guidance appointment with the Money and Pensions Service (MaPS) if a proposed transfer is deemed to be a potential scams risk. The same transaction may therefore result in a member being directed to both Pension Wise and MaPS. This has deliberately not been addressed in the stronger nudge regulations so that schemes have the freedom to decide how they can appropriately explain the two guidance appointments; and
- separately, the FCA has already consulted on similar provisions which will apply to personal pension schemes.
The consultation asks for views on the practical effect of the proposed regulations, including how the nudge would fit into existing communications and practices, the costs involved, and any impacts or unintended consequences. Trustees and scheme managers should be considering how the information currently given to members will need to be amended to reflect these new requirements, whilst also taking account of the proposed regulations on scams guidance appointments. The consultation closes on 3 September 2021 and the new rules are expected to come into force on 6 April 2022.