PART 4 – “STRONGER NUDGE” TO PENSIONS GUIDANCE – NEW OBLIGATIONS FOR TRUSTEES

29 / 03 / 2022

The latest government initiative to improve the uptake of free, impartial guidance from Pension Wise by individuals before they start drawing money purchase/cash balance benefits (“flexible benefits“) or (in some cases) decide to transfer their flexible benefits, goes live on 1 June 2022. The aim is to elevate taking guidance as a normal part of the application process. Where the individual does not wish to take guidance, the government wants to ensure that this is an “active and considered” decision.

This latest initiative follows hot on the heels of the entirely separate pension scam safeguards which came into force on 30 November 2021 (see our article from the November 2021 Pensions Compass Part 1 – Transfer Regulations – do they provide enough protection? – Wedlake Bell).

Current position

Currently, trustees are required to direct members to the appropriate pension guidance available through Pension Wise when they contact the scheme about their options in relation to their flexible benefits. While trustees are required to tell members that they should access the guidance and consider taking independent advice to help them decide which option is most suitable for them, trustees are not required to ensure that members do in fact access the guidance.

From 1 June 2022…

Where on or after 1 June 2022 a member makes an application (or a communication in relation to such an application) to start receiving or transfer their flexible benefits, under the new “stronger” nudge Regulations trustees must:

  • offer to book a pensions guidance appointment with Pension Wise at a date and time suitable for the member and, if the member accepts the offer, take reasonable steps to book the appointment. Where the member does not accept this offer, or where the trustees are unable to book an appointment despite having taken reasonable steps, the trustees must provide the member with details of how to book an appointment;
  • explain to the member that they cannot proceed with the application unless the member has received pensions guidance or opts-out of receiving guidance by giving the trustees an “opt-out notification” (see below).

Trustees must continue to deliver the “stronger nudge” in all subsequent interactions with the member about their application until the member either confirms that they have received appropriate pensions guidance or provides the trustees with an opt-out notification.

What is an “opt-out notification”?

A member may opt-out of receiving pension guidance by giving verbal or written notification to the trustees. The opt-out notification must be contained in a communication “solely for the purposes of opting-out” unless:

  • in the previous 12 months the member received pension guidance or regulated financial advice in connection with the application; or
  • the member qualifies for a serious ill-health lump sum; or
  • the application is solely to transfer their flexible benefits, rather than starting to draw benefits.

We would recommend that an opt-out notification is always obtained in either writing or email by including a separate online or postal form with all stronger nudge information. This will assist in managing the inevitable raft of future claims by members who grow to regret earlier decisions.

Exceptions

The requirements will not apply where the member applies to transfer rights in the following circumstances:

  • the member is aged under 50; or
  • receiving flexible benefits is not the purpose (or one of the purposes) of the transfer application;or
  • the member (or an authorised person) has confirmed that either:
    • the trustees of another pension scheme have referred the member to pension guidance, and the member has either received the guidance or opted-out; or
    • the member is transferring to a personal pension scheme which is regulated by the Financial Conduct Authority.

Record keeping

The new requirements require trustees to keep records of:

  • the members having received pension guidance;
  • the provision by the members of opt-out notifications; and
  • receipt of confirmation that the member meets one of the conditions for not having to opt-out in a communication “solely for the purpose of opting-out”.

In practice, we would advice trustees to keep records of all steps taken to comply with the new requirements.

Generally, trustees should also have regard to TPR’s updated Guidance reflecting the new “stronger” nudge requirements.

Practical considerations for trustees

  • Money purchase additional voluntary contributions (“AVCs”) are flexible benefits, and the requirements will therefore apply in relation to AVCs even if the scheme does not provide any other flexible benefits;
  • Ensure administrators processes are updated by 1 June 2022 in order to recognise when the new requirements may be triggered and apply;
  • Update member communications with a view to providing clear information and explanation and that the appropriate level of repetition is achieved when the member makes contact with the trustees (before the member opts-out or confirms receipt of guidance); and
  • Robust record keeping procedures are in place in order to demonstrate compliance.