The pensions industry is confused by the different approaches taken to “nudge” individuals to obtain guidance before accessing their pensions, as the government releases different rules to the City watchdog.
The Department for Work and Pensions has today (January 17) published its response to its consultation on implementing a stronger nudge to pensions guidance, but it is noticeably different to the FCA’s rules which were published before Christmas (December 1).
For example, the DWP’s rules will not require people to opt out of guidance if they are transferring their benefits, unlike the Financial Conduct Authority's, which will.
The FCA's rules apply to providers of personal pensions, including operators of self‑invested personal pensions (Sipps), whereas the DWP's rules are for trustees and managers of occupational pension schemes.
The regulations have been put in place to increase take up of pensions guidance provided by Pension Wise, by requiring trustees and managers to ensure that members have either received or opted out of receiving appropriate guidance before proceeding with their application to receive, or transfer, their benefits.
In its rules the DWP said while transfers were a good point in time for people to be referred to guidance, it did not want to put barriers in the way for savers who are thinking of consolidating their pensions.
Therefore it has removed the requirement for savers to have to specifically opt out of taking guidance when looking to move their pensions.
The DWP stated: “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.”
Under the FCA rules, providers are required to nudge savers to guidance at the point they transfer a pension with the aim of accessing their savings.
This nudge can either be provided by the transferring or receiving scheme under the FCA rules but the DWP has also introduced an exemption so that managers of a ceding scheme will not have to deliver the stronger nudge if a receiving scheme has already done so.
Another difference between the two is that while the FCA says the nudge should come when the saver applies to take a retirement income, the DWP says the nudge can be delivered earlier.
Tom Selby, head of retirement policy at AJ Bell, said the differences were “far from ideal” when from a member's perspective there is little difference between the various types of pension schemes they hold.
Selby said: “There are differences in the nature and timings of when each regulator asks providers and trustees to nudge members towards guidance.
“Similarly, the DWP rules are much more inflexible when requiring how and when members can opt out of seeking guidance, often requiring a separate communication or form to be completed. The FCA, on the other hand, has made no such stipulation.
“We hope that at some point very soon the rules will be reviewed and aligned to provide some consistency.”
DWP defends differences
Kate Smith, head of pensions at Aegon, said it was important to have joined up regulation for all pension savers wherever possible.
Smith said: “The reality is that many pension savers will have both defined contribution trust-based and contract-based pensions. From a member’s perspective, it makes little sense for their experience to differ purely down to the type of scheme they are in.
“Differences in how the stronger nudges are applied between trust-based and contract based schemes will merely lead to confusion and doesn’t help make pensions any simpler.”
Similarly, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said it was important to make the process as simple to navigate as possible.
Morrissey said: “Having key differences between trust and contract based schemes will only bring confusion. Someone could well have pensions in both contract and trust-based schemes and if there are different rules and processes then we risk disengaging people at a key point in their retirement journey.”
But the DWP said it did not consider these variations to be “genuine points of difference”.
The DWP said while its consultation asked for views on small pension pots, and the interaction between safeguarding appointments and stronger nudge proposals, there was no difference between the requirements of the FCA’s and DWP’s approaches.
The DWP stated: “Some differences are simply a matter of the different legislative context in which the respective organisations operate. For instance, on the timing of the stronger nudge, we are both amending different pieces of legislation, which means the relevant wording we use will consequentially differ.
“However, both our regulations and the FCA’s rules target the point at which a beneficiary enquires about receiving flexible benefits, and so there is no real-world contradiction in the requirements that they place on schemes in scope.”
The new rules will come into force on June 1, 2022 and will apply to savers with occupational pension schemes aged 50 or above looking to access their defined contribution pension.
amy.austin@ft.com
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