News for trust-based schemes
From 1 June 2022, new rules come into force which are designed to increase the take-up of Pension Wise guidance at the point individuals access their DC savings, with the latest retirement income data showing that only 14% of consumers who are accessing their DC pension pot for the first time currently make use of this service (source: WPC report on protecting pension savers).
Currently, trustees are required to make such members aware that free and impartial pensions guidance is available, to provide details of the Pension Wise service, and to tell members that they should consider taking regulated advice. However, there is currently no obligation for them to ensure that members do in fact access the guidance.
In January 2022, the DWP published its response to the July 2021 consultation on proposed regulations introducing requirements for individuals to be given a stronger nudge to pensions guidance. The new regulations state that, from 1 June 2022, when a member makes an application to access or transfer their flexible benefits, or a communication in relation to such an application, trustees must:
Trustees are expected to continue to deliver the stronger nudge in all subsequent interactions with the member in relation to the same application, unless the member confirms that they have received appropriate pensions guidance or provides the trustees with an opt-out notification. In addition, trustees must keep a record of the member’s receipt of pensions guidance, their receipt of an opt-out communication from the member, or the applicable exemption.
There are some exemptions to the above requirements; the stronger nudge will not be required in the following circumstances:
In relation to the opt-out notification, the DWP has stated that it must be contained in a separate communication to other application documents, for example as a separate opt-out form. The exception here is where the trustees receive verbal or written confirmation from the member (or a person authorised to act on their behalf) that the member has received guidance/regulated financial advice in connection with the application in the previous 12 months, the member qualifies for a serious ill-health lump sum, or their application is solely to transfer their flexible benefits.
Discussing the purpose of the new regulations, Guy Opperman stated ‘The Stronger Nudge provisions are an important measure designed to help people make informed decisions about accessing their pension savings. These measures will help protect consumers and encourage use of the free, impartial guidance that is available to help them make informed decisions about the options available to them.’
TPR has stated that it aims to produce its own guidance ahead of the new duties coming into force to help trustees and administrators prepare for the changes.
At the same time, similar FCA rules will come into effect for providers of personal pensions and stakeholder schemes.