You may well have heard of the “stronger nudge” requirements that came into play from 1 June 2022. These requirements sit alongside the new transfer requirements that came into force last November and have previously been covered in this blog. In this post we look at what the stronger nudge requirements are, the exemptions to the requirements and the records that trustees should be keeping.

Stronger nudge requirements?

The clue really is in the name. The new regulations require trustees to “nudge” beneficiaries to Pension Wise before they access their pension savings by ensuring members wishing to access their DC or cash balance benefits have either received or opted out of receiving Pension Wise guidance before proceeding. The changes implement a requirement under the Financial Guidance and Claims Act 2018 and are designed to increase take-up of the Pension Wise service. Pensions Wise is a government service from MoneyHelper that offers free, impartial guidance to consumers about their pension options.

What do trustees have to do?

The regulations in place prior to 1 June 2022 only required trustees to signpost members to Pensions Wise guidance and trustees weren’t required to book a Pensions Wise appointment or otherwise ensure that members actually accessed the guidance. The DWP felt that this position resulted in beneficiary inertia in relation to the uptake of guidance.

Now, under the new regulations, when a member or a beneficiary entitled to benefits on the death of a member (a “beneficiary”) makes an application or otherwise communicates with the trustees about transferring or accessing DC or cash balance benefits (“flexible benefits”), trustees must:

• refer the beneficiary to Pension Wise guidance and explain the nature and purpose of the guidance (including that it is free);
• offer to book a Pensions Wise appointment for the beneficiary. If the offer is accepted, the trustees must book the appointment. If the offer is not accepted, or where the trustees are unable to book an appointment despite having made reasonable efforts to do so, the trustees may provide details of how the beneficiary can book a Pension Wise appointment; and
• explain to the beneficiary that they cannot proceed with the application unless the beneficiary has received the appropriate Pensions Wise guidance or has otherwise opted out of receiving the guidance. If the beneficiary decides to opt out, they will need to supply the trustees with an opt out notification.

If the beneficiary does not confirm that they have received the guidance, or fails to correctly opt out, the trustees will need to repeat certain aspects of the “stronger nudge” in subsequent communications with the beneficiary in respect of the same application.

As set out above, the trustees’ obligation to deliver the “stronger nudge” arises early in the process when a beneficiary contacts the scheme to discuss their options, rather than just when an application to transfer out is received, which is likely to be later. Trustees are, however, able to provide quotes or other information to beneficiaries before delivering the “stronger nudge.”

Are there any exceptions?

There are several potentially helpful exemptions. The “stronger nudge” requirements do not apply in the following circumstances:

• Where the beneficiary is under the age of 50 (unless they are accessing their flexible benefits due to ill health).
• When the purpose (or one of the purposes) of the beneficiary’s application is not to receive the flexible benefits e.g., the application is intended to consolidate pension benefits.
• When the trustees receive from the beneficiary (or a person authorised to act on their behalf) verbal or written confirmation that the beneficiary has opted out of, or has received, Pensions Wise guidance.
• When the beneficiary is transferring into a pension scheme which, broadly speaking, is regulated by the FCA.

What should an opt out notification look like?

The regulations state that, except in the circumstances outlined below, an opt out notification must be given “in a communication made solely for the purpose of opting-out” of the guidance. An opt out notification must therefore be contained in a separate communication (either written or verbal) unless the beneficiary (or someone authorised to act on their behalf) confirms that:

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

Are trustees required to keep records?

Trustees need to keep records of interactions with beneficiaries, including the receipt of appropriate pensions guidance following a nudge and any opt-out notifications. Although several requirements state that notification can be given to the trustees either orally or in written form, the obligation to keep records means that trustees would be prudent to request all notifications in writing.