Seven defined benefit schemes with £217bn in assets have asked for Work and Pensions committee intervention due to concerns regarding ‘stronger nudge’ requirements, which they believe are not fit for purpose.
The stronger nudge was designed to increase uptake of Pension Wise guidance, by ensuring that scheme members must either receive or opt out of guidance before accessing or transferring their pension.
Despite the new rules applying to defined contribution schemes, DB pension funds can be caught up by the regulations if they offer additional voluntary contributions, or other small DC benefits such as transfer credits.
I don’t think that referring members of DB schemes who pay AVCs would lead to confusion, but it would lead to general embarrassment
Henry Tapper, AgeWage
In a letter sent to Work and Pensions committee chair Stephen Timms, published on July 20, the schemes argued the application of these requirements for members with AVCs would be very likely to “result in confusion” among savers, as well as “them making decisions not in their interest”, such as not taking their AVCs as part of their tax-free lump sum.
This is due to the fact that “Pension Wise cannot provide guidance on AVC options within a DB arrangement”, the schemes said.
The signatories of the letter – BT Pension Scheme, Universities Superannuation Scheme, TPT Retirement Solutions, BP Pension Fund, Mineworkers’ Pension Scheme, British Coal Staff Superannuation Scheme and Royal Mail Pension Plan – with a collective 1.5mn members, are “concerned with the policy from the perspective of DB and hybrid schemes”.
DWP to consider exemption
The schemes have engaged with the Department for Work and Pensions, which they stated has committed to “giving consideration to an additional exemption to cover AVCs/small hybrid DC pots following the collection of data on member reaction”.
Once this data collection is done, the schemes will look out for indicators of whether the stronger nudge processes cause confusion among members, whether individuals are making more complaints due to delays to the retirement and transfer process as a result of the new rules, and the administrative burden that impacts schemes following this implementation.
The schemes stated that they will try their best to collect feedback from individuals but noted that it is “more likely that members will give feedback to Pension Wise directly on how helpful they found their appointments, rather than their pension scheme”.
The letter suggested that DWP officials also try to collect feedback from members with mainly DB benefits and those with mainly DC benefits, “to help establish whether our concerns are justified”.
The schemes recognised the committee’s “close interest” in the stronger nudge policy, and that MPs had previously expressed concerns that the new rules would be “insufficient” to ensure that taking Pension Wise guidance becomes the norm.
Although the schemes supported the standardisation of the policy for DC schemes, for those in DB or hybrid schemes “this approach may not be appropriate”, the letter stated.
The letter concluded with the schemes encouraging the committee “to question ministers and regulators” on this issue, to ensure “the impact on DB and hybrid schemes forms part of the scrutiny”.
Referring members will lead to ‘embarrassment’
Agewage’s chief executive Henry Tapper, who is involved in assisting on these issues through an organisation called AVCWise, noted that ”members of occupational pension schemes who pay AVCs are likely to be well off and financially sophisticated”.
“Few will get confused by Pension Wise, but they are likely to be confused why Pension Wise was thought [to be] a good idea!”
Govt rejects call for automatic Pension Wise appointments
The government has ruled out automatically enrolling pension savers into guidance appointments with Pension Wise before they can access their retirement pot.
He explained that “AVCs can be used to reduce the need to commute pension for tax-free cash; some still provide guaranteed annuity rates and many are invested in with-profits funds. Pension Wise is not geared to deal with this level of granularity.”
Tapper added: “I don't think that referring members of DB schemes who pay AVCs would lead to confusion, but it would lead to general embarrassment.
“The schemes mentioned all invest substantially in member communications and really should be exempt from nudging members to Pension Wise.”
