Stronger nudge to pensions guidance

The DWP is consulting on measures to increase the take up of Pension Wise (“Guidance”) by imposing new requirements on schemes which offer flexible benefits (broadly money purchase or cash balance rights) to obtain Guidance unless they formally opt out.

The new requirements will apply to members aged 50 or over who make an application to transfer or to start receiving flexible benefits, regardless of the size of their pot. The DWP proposes not to define at what point the stronger nudge must occur, but the policy intention is that it should be as early as practical within the process. Members seeking to transfer would, where relevant, also need to attend a new scams guidance appointment once this is brought into force. Where the “stronger nudge” applies, existing signposting requirements fall away.

The nudge will not be required for transfers to defined benefit schemes or where the sole purpose is consolidation. Moreover, members can opt out of the requirement to obtain Guidance, but this process has to be undertaken separately from the initial transfer application. The intention is that this will force members to think carefully before opting out.

Members applying for a serious ill-health lump sum or where the member has received Guidance in the previous 12 months or regulated advice on the transaction can opt-out of the Guidance requirement without this having to be undertaken as a separate process.

Schemes must:

• Not proceed further with a transfer or retirement until the member has received, or opted out of receiving, Guidance. As a minimum, the policy intention appears to be that schemes should not act on an application until the member has obtained Guidance or opted out of doing so. The consultation document, however, suggests that schemes should not even send out an application form or quote until the member has done so.
• Explain the nature and purpose of Guidance and facilitate the booking of a Pension Wise appointment as part of the application process. For purely online digital journeys, the Pension Wise booking tool could be embedded into the scheme website. Where a member wishes to book the appointment themselves, the scheme must provide them with details of how to do so.
• Introduce a separate opt-out procedure – and record the response.

The consultation closes on 3 September 2021.