DWP tweaks 'stronger nudge' in response to industry complaints

The stronger nudge is designed to increase uptake of Pension Wise guidance. Launched in July, the government’s consultation proposed that scheme managers and trustees should ensure members had either received or opted out of guidance before accessing or transferring their pension.

It is essential to industry and consumers that there is consistency in the requirements, as this will remove complexities where transfers span across both regulatory regimes and ensure the nudge to pensions guidance achieves its objectives

Renny Biggins, The Investing and Saving Alliance

While the proposed goals were broadly supported, the means laid out in the consultation attracted significant industry criticism.

Girish Menezes, head of pensions at Premier, said at the time that the proposal that scheme administrators should be in charge of organising and booking Pension Wise appointments for members was an “unworkable requirement”.

Having schemes contact everyone over the age of 50 looking to access or transfer their pension could amount to “a resource commitment schemes won’t be able to afford”, he warned.

Society of Pension Professionals president Fred Emden similarly cautioned that the nudge could in fact result in poor member outcomes, the proposals resulting in “real-time delays in members transferring their benefits between schemes and having their retirement benefits settled”.

“This will result in frustrated and upset members who perceive that their pension scheme, and the pensions industry in general, is putting obstacles in the way of them doing what they want with their pension pot," Emden added.

Concerns assuaged?

In its consultation response, published on Monday, the government announced a number of easements designed to address concerns about the administrative load its proposals would entail.

While scheme trustees will still be required to facilitate the booking of Pension Wise appointments when members apply to access or transfer their pensions, the DWP has amended its proposed regulations to account for the differences in customer journeys.

“In a postal or online journey, for instance, the offer to book may be satisfied by providing a phone number for beneficiaries to call if they wish the scheme to book an appointment on their behalf, alongside details on how the beneficiary may book an appointment themselves,” it explained.

“Trustees and managers will not be required to organise the booking of an appointment and coordinate diaries via a purely postal or online route.”

It has also removed the requirement to opt out in relation to transfer requests in order that the requirements do not present barriers to consolidation.

“This means that, whilst beneficiaries in scope will receive the stronger nudge on requests to transfer flexible benefits, they will not be required to opt out of Pension Wise guidance in a separate interaction,” the DWP explained. 

“This, we believe, best meets our goal of referring beneficiaries to Pension Wise as early as is practical, whilst recognising that for some beneficiaries transferring a pot from age 50, a Pension Wise appointment may not be beneficial.”

It has also disapplied the requirement for trustees and managers of ceding schemes to deliver the stronger nudge where the receiving scheme has already done so.

Tim Middleton, director of policy and external affairs at the Pensions Management Institute, welcomed the changes, telling Pensions Expert: “It is clear that far too many people have been accessing flexible benefits without first having received adequate guidance, and we are encouraged that the government has taken steps to ensure that guidance is to be more clearly targeted towards those who most need it.” 

“Pension Wise has never been used as widely as it should have been, and the changes announced today will do much to redress this. In particular, the range of exemptions announced today will ensure that managers and trustees will be able to focus on those members considering decumulation rather than those seeking simply to transfer,” he continued. 

“The approach adopted is pragmatic as it balances a greater emphasis on guidance without compromising member choice.”

Renny Biggins, head of retirement at The Investment and Savings Alliance, was similarly pleased, especially because the amended proposals more closely align with separate proposals from the Financial Conduct Authority. 

Pensions Expert has reported previously on concerns about regulatory divergence, which Emden warned in September “may cause confusion to individuals who have more than one type of pension and will create additional expense for those firms who administer both trust-based and contract-based arrangements”.

“Tisa welcomes the new DWP proposals around the stronger nudge and are encouraged to see that they have become more aligned with the FCA regulations,” Biggins said. 

“It is essential to industry and consumers that there is consistency in the requirements, as this will remove complexities where transfers span across both regulatory regimes and ensure the nudge to pensions guidance achieves its objectives.”

He particularly welcomed the decision to remove the requirement to opt out in a separate communication, “and the recognition of different consumer journeys in the Pension Wise booking process”. 

“We agree with the government position that guidance should not be mandated. However, individuals should recognise and be aware of the benefits that a guidance session in the absence of regulated advice could provide. These proposals will help towards realising that goal,” he said.

Difficulties remain

Not all concerns were assuaged, however, with some experts pointing out that the amended requirements still represent a significant administrative burden.

James Riley, president of the SPP, noted that "much will rest on the quality and timeliness of such guidance. In particular, it is important that members see any guidance as supporting their retirement goals rather than as a barrier to accessing their pension".

Lesley Carline, chair of the Pensions Administration and Standards Association’s DC Working Group, told Pensions Expert that, though the goal of increasing Pension Wise uptake was creditable, “we stressed our concerns regarding the onerous and complex requirement which would fall upon the administration teams of the providers”.  

“This is irrespective of whether it is the trustee or scheme manager who bears responsibility. Processes would need to be redesigned and systems updated to record data. Providers cannot implement this overnight and if/when regulation comes into play, this would involve a cost which would not be absorbed by providers, but would pass onto consumers.

“Pasa believes consumers should be provided information and education early on the process and take on the responsibility to book appointments themselves, preferably making use of a centrally run booking service,” she said.

She added that the decision to disapply the opt-out in relation to transfer requests could still invite “unintended consequences”, simplifying things for members, “but over-complicating the practical operational aspects of administering pension arrangements”.

“In turn, this will increase costs, which will ultimately need to be passed onto the consumer”.

The DWP’s consultation response disputed the suggestion that there was significant divergence between its proposed measures and those of the FCA, arguing that “many of the alleged differences between the FCA’s rules and our regulations we do not consider to be genuine points of difference”. 

Carline was not satisfied, however, telling Pensions Expert: “Just because the DWP has decided there are not genuine points of difference, [that] doesn’t make the industry criticism invalid. If there weren’t issues, why would the industry say there were? 

“It is disappointing these concerns have been so easily dismissed.”