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A ‘stronger nudge' to pensions guidance’: What do trustees need to know?

The UK government has implemented the ‘stronger nudge’ regulations, which came into force on 1 June 2022. The regulations aim to improve the uptake of free guidance for pension scheme members approaching retirement age who want to transfer their benefits to another pension scheme. Liz Graham, Ruth Bamforth and Michael Wilcock of Walker Morris’ Pensions  Team explain the new requirements and what they mean for trustees.

New regulations now in force

Although trustees of pension schemes are used to dealing with requests from members wanting to take or transfer their benefits, new rules have been introduced.  Trustees of defined contribution schemes need to be aware of them!

The new rules, which came into effect from 1 June 2022, aim to improve uptake of free, impartial guidance from Pension Wise by scheme members approaching retirement age.

The new requirements come in the form of The Occupational and Personal Pension Schemes (Disclosure of Information) (Requirements to Refer Members to Guidance etc.) (Amendment) Regulations 2022.  They are colloquially referred to as the ‘stronger nudge’ regulations.

Although the new stronger nudge regulations generally do not apply to defined benefit schemes, defined contribution additional voluntary contribution (AVC) arrangements are within the scope when the AVCs are drawn or transferred.  This means that trustees of defined benefit schemes also need to comply in relation to any money purchase AVC arrangements they still operate.

What are the new requirements?

When a member makes a decision to access or transfer their benefits, trustees must now:

  1. Explain the nature and purpose of pensions guidance;
  2. Explain that such guidance is free; and
  3. Offer to book an appointment with Pension Wise on the member’s behalf.

If the member accepts the offer, trustees must take reasonable steps to book that appointment. If that is not possible, the member must be given details of how to book an appointment themselves.

Trustees will require confirmation that a member has received guidance, or that they have expressly opted out, before being able to proceed with the application.

Who do they apply to?

The new requirements apply to all members of defined contribution schemes who are over 50, so long as that member has not opted out.

Caution should be taken when not complying with these requirements due to a member opt-out:

  • A valid opt-out will require a member to give written notification to the trustees that they want to opt-out; and
  • This notification must generally be in a standalone document made solely for the purpose of opting out. The member’s decision to opt-out can’t be communicated in the same document as the initial transfer/draw down request.

The requirements will only apply where the member’s intention is to access their benefits. For example, if a member requests a transfer for the purpose of consolidating their benefits, the new requirements will not apply.

The requirements will also not apply where the member is transferring into a pension scheme that is regulated by the Financial Conduct Authority.

Practical tips

There are no transitional provisions for applications that were already in progress at 1 June 2022.  There is also no grace period for trustees to ‘get used’ to the new requirements. Trustees must deal with any application to transfer or draw down benefits in line with the new requirements, giving members pensions guidance information as soon as possible.

Record keeping to prove compliance with these requirements is key. Importantly, trustees must keep records of the pensions guidance received by a member and any opt-out notification. In practice, trustees will also want to keep records of compliance with each step in the process and, where possible, to engage with the member in writing rather than verbally.

How we can help

The stronger nudge regulations are now in force and trustees should be making the necessary changes to their benefit application processes. Trustees do not have to navigate these new requirements alone. If you have any queries or concerns, or if you are interested in receiving legal and practical advice or training in relation to the new regulations or any other pension-related issue, please do not hesitate to get in touch with Walker Morris Pensions specialists Liz Graham or Ruth Bamforth.

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Liz
Graham

Partner

Pensions

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Ruth
Bamforth

Director

Pensions

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Ruth's contact details

+44 (0)113 283 4570

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