Matthew Swynnerton
Key points
- On 1 June new requirements come into force which will require trustees of occupational pension schemes to deliver a “stronger nudge” to pensions guidance for members who are seeking to access, or transfer for the purposes of accessing, their defined contribution (DC) benefits.
- The new requirements aim to increase take up of Pension Wise guidance. Where the requirements apply, trustees must not proceed with the application until the beneficiary has received Pension Wise guidance and notified the trustees of this, or has opted out of receiving such guidance.
- The Financial Conduct Authority has also made separate rules in relation to a stronger nudge to pensions guidance to be delivered by the providers of personal and stakeholder pension schemes.
- This article focuses on the requirements that apply to trustees of occupational pension schemes. Trustees of schemes with DC members will need to review and update their transfer and retirement processes by 1 June 2022 to reflect the new requirements.
Matthew Swynnerton looks at some of the issues that trustees will need to be aware of when reviewing and updating their processes so that they are ready to comply with the new requirements.
New requirements come into force on 1 June 2022 which will require trustees of occupational pension schemes to give members a ‘stronger nudge' to the pensions guidance provided by Pension Wise.
Relevant beneficiaries
The new requirements relate to so-called "relevant beneficiaries", that is, a member or a survivor of a member who has a right or entitlement to flexible benefits (DC or certain other benefits) under the scheme. There is no exception for schemes where the only DC benefits relate to additional voluntary contributions (AVCs). This means that, for defined benefit schemes providing DC AVCs, the stronger nudge requirements are relevant to those DC benefits.
When the requirements apply
The stronger nudge requirements apply where, on or after 1 June 2022, the trustees receive an application, or communication made in relation to an application, from a relevant beneficiary to: transfer rights to flexible benefits they have accrued under the scheme; or start receiving flexible benefits provided by the scheme.
The reference to a communication in relation to an application was added following a consultation on the draft regulations, with the DWP's response explaining that it wants to give trustees the freedom to deliver the stronger nudge earlier in the process where appropriate, before the receipt of an application form.
Where the stronger nudge requirements apply, trustees must not proceed with the application until the beneficiary has received the Pension Wise guidance or opted out of doing so. The Pensions Regulator's guidance states that it is therefore good practice to offer to book a Pension Wise appointment as early as possible in the process.
The regulations include some exceptions so that, in summary, the stronger nudge requirements do not apply to transfer cases where: (1) the beneficiary is under the age of 50; (2) receiving flexible benefits is not one of the purposes of the application; (3) the beneficiary has been referred to Pension Wise by the trustees of another scheme and received, or opted out of receiving, the guidance; or (4) the receiving scheme is required to comply with Financial Conduct Authority rules on disclosure of information about pensions guidance.
The stronger nudge
In summary, trustees must ensure that the beneficiary is provided with an explanation of the nature and purpose of the guidance and facilitate the booking of a Pension Wise appointment. As part of the application process, they must offer to book a Pension Wise appointment on behalf of the beneficiary on a date, at a time and of a kind suitable for the beneficiary.
If that offer is accepted, the trustees must take reasonable steps to book the appointment. If the offer is not accepted or the trustees, having taken reasonable steps, are unable to book a suitable appointment, they must provide the beneficiary with details of how to book the appointment.
The regulator states that how trustees implement the requirements may differ depending on whether the application or interaction with the beneficiary is over the phone, by post or online. Its guidance includes an example setting out its expectations for postal and online applications.
Opting out
Subject to exceptions, a beneficiary's notification that they are opting out of receiving guidance must be given in a communication solely for the purpose of opting out. This is intended to ensure that the decision to opt out is a considered one.
The regulator states that this communication could, for example, be a further telephone call, an online opt out form through a member portal, or an email or separate form provided with an application. The exceptions to the requirement for the opt out to be in a communication solely for that purpose are where: (1) the application is solely to transfer rights to flexible benefits; (2) the beneficiary has received Pension Wise guidance or regulated financial advice in connection with the application in the previous 12 months; or (3) the beneficiary qualifies for a serious ill-health lump sum.
Actions for trustees
Trustees of schemes with DC members need to ensure that their transfer and retirement processes are updated to reflect the new requirements from 1 June. Issues for trustees to consider include: (1) identifying relevant members and cases where an exception applies; (2) when in the process the stronger nudge will be given; (3) updating relevant scheme literature to reflect the stronger nudge; (4) ensuring that, where required, opt outs are given in a separate communication; and (5) ensuring that they are complying with new requirements to keep records relating to whether a beneficiary has received guidance or opted out.
Matthew Swynnerton is pensions partner at DLA Piper
