A “stronger nudge” to pensions guidance – new obligations for pension trustees

From 1 June 2022, trustees of schemes that provide DC and/or cash balance benefits (“flexible benefits”) will be required to deliver a “stronger nudge” for members to access guidance on their options in relation to their flexible benefits (“appropriate pensions guidance”) from Pension Wise.¹

Currently, trustees are required to direct members to the appropriate pensions 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.

However, from 1 June, where a member makes an application to access or transfer their flexible benefits, or a communication in relation to such an application, trustees must:

• Offer to book a pensions guidance appointment with Pension Wise on behalf of the member and, where the member accepts this offer, take reasonable steps to book that 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 (and has notified them of having received) appropriate pensions guidance or the member opts out of receiving guidance by giving them an opt-out notification.
• Explain to the member that they can only opt out of receiving appropriate pensions guidance by giving the trustees an opt-out notification.

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 gives the trustees an opt-out notification.

Exceptions

The “stronger nudge” requirements will not apply in the following circumstances:

• The member is under the age of 50.
• Receiving flexible benefits is not the purpose, or one of the purposes, of the member’s application.
• The member (or someone authorised to act on their behalf) has confirmed that the member has been referred by the trustees or managers of another pension scheme to appropriate pensions guidance or that the member has received or opted out of receiving appropriate pensions guidance. This confirmation can be made verbally or in writing, but we would recommend that schemes obtain it either in writing or via email.
• The member is transferring into a pension scheme that is regulated by the Financial Conduct Authority.

Opt-out notifications

An opt-out notification must be contained in a separate communication unless the member (or someone authorised to act on their behalf) confirms one of the following:

• In the preceding 12 months, the member has received either (a) appropriate pensions guidance or (b) regulated financial advice in connection with the application.
• The member qualifies for a serious ill-health lump sum.
• The member’s application is solely to transfer their flexible benefits.

This confirmation can be made verbally or in writing, but as before we would recommend that schemes obtain it either in writing or via email.

Record-keeping

Trustees must keep a record of:

• The receipt by members of appropriate pensions guidance.
• Opt-out notifications.
• The receipt by them of the confirmations set out in the “Opt-out notifications” section.

What do trustees need to do?

Trustees and administrators of schemes that provide flexible benefits should consider what changes they will need to make to their administration and member communication processes in order to comply with the “stronger nudge” requirements. DC additional voluntary contributions (“AVCs”) are flexible benefits, and the requirements will therefore apply in relation to DC AVCs even if the scheme does not provide any other flexible benefits. The 1 June implementation date is not far away so trustees and administrators should start taking action now, including taking advice on the requirements where necessary.

The Pensions Regulator has published a blog post on the requirements and is intending to produce guidance for trustees and administrators ahead of the 1 June implementation date.

For more information, or advice in relation to the “stronger nudge” requirements, please speak to your usual Mayer Brown contact.