73: Stronger nudge requirements to come into force from 1 June 2022

The DWP has published a response to its consultation on new requirements for occupational DC schemes to deliver a stronger nudge to pensions guidance, together with the final regulations which will implement these changes. These regulations are due to come into force on 1 June 2022, rather than 6 April 2022 as originally proposed, at the same time as similar changes for contract-based schemes are introduced by the FCA.

Currently, trustees and scheme managers are required to inform members who are considering accessing their flexible benefits that free and impartial pensions guidance is available, that they should consider taking independent advice, and to explain how to obtain this guidance.

From 1 June 2022, trustees will be required to deliver a stronger nudge to guidance in relation to applications to access flexible benefits, or to transfer to another scheme with the intention of accessing flexible benefits by ensuring that members have either received or opted out of receiving guidance and by facilitating the booking of a Pension Wise guidance appointment as part of the application process.

There are some exemptions to the stronger nudge obligation, for example, where the beneficiary is under 50, where the sole or main purpose of the transfer is not for accessing flexible benefits (eg for the purpose of consolidation) or the transfer is to a scheme which is regulated by the FCA.

Delivering the stronger nudge to guidance

The obligation arises when a member contacts a scheme to discuss their options. This means the stronger nudge to guidance should be delivered early in the process, not just on receipt of an application form as previously proposed. However, it has been confirmed that schemes will be able to provide quotes or other information to beneficiaries before delivering the stronger nudge.

In terms of delivering the stronger nudge, trustees and managers must:

• refer a member to the appropriate guidance and explain its purpose;
• facilitate a guidance appointment which may be done by providing a phone number for beneficiaries to call if they wish the scheme to book an appointment on their behalf, alongside details on how they may book this for themselves. Trustees and managers will not have to organise a Pension Wise booking and coordinate diaries via a purely online or postal route as originally proposed in the consultation;
• explain that the application can’t proceed unless they have received the appropriate guidance and confirmed that to the trustees or confirmed that they have opted out;
• ensure that opt-outs are done via a stand-alone communication (ie separate from the application process) where a member is considering accessing flexible benefits. Note that stand alone confirmation is not required where the application relates to a transfer or where the member (or person authorised to act on their behalf) confirms they have received guidance in the previous 12 months, or they qualify for a serious ill health lump sum.

Ceding schemes are not required to deliver the stronger nudge where the receiving scheme has already done so, and the beneficiary has received guidance or opted out.

Comment

The DWP has confirmed that the majority of respondents to the consultation were supportive of the new regulations. However, wider concerns have been raised about the increased administrative and costs burden for trustees and scheme managers; the lack of alignment between these regulations and the FCA’s proposals; and potential delays for members when accessing or transferring their flexible benefits.

It is also worth noting the added complication of the separate requirement for members to be signposted to advice on scams from the Money and Pensions Service which came into force in November 2021 in relation to high risk transfers. Guidance from the Pensions Regulator is expected to be published in the near future which should help schemes implement the new regulations.

In the meantime, trustees should be looking at redesigning application processes and updating systems in time for the 1 June deadline. This should include procedures to ensure compliance with the obligation to keep records of communications with beneficiaries about the guidance they have received, or their opt-out notifications.