Stronger Nudge Rules for Pensions

There are to be stronger nudges towards pension guidance when consumers approach their pension companies to transfer their pensions to another company and transfer their pensions for flexible pension drawdown access.

Currently, there is a regulataory requirement that if you have guaranteed or safeguarded pension rights inside a Defined Benefit/Salary Related pension scheme or a pension scheme with GMP Guaranteed Minimum Pension rights worth more than £30,000, you are required to seek financial advice and your adviser to complete the analysis and sign an advice declaration form.

For non-guaranteed, investment linked/money purchase pensions, there is no regulatory or legal requirement to take financial advice.   That said, just because a supermarket chain can stock a particular brand of baked beans does not mean it has to.  This is the same for pension transfers and flexible drawdown.  Just because regulations do not require financial advisers to be involved, many pension firms have adopted the £30,000 benchmark across all pension transfers/flexible drawdown and require adviser involvement.

Nudging Consumers

Currently, when a consumer asks their pension company for a transfer value, the provider will issue this but also with signposts to suggest talimg to Pension Wise and also taking financial advice.  This light touch ‘nudging’ will change in June 2022.

The government and the Financial Conduct Authority is concerned that too many people are accessing their pensions early, spending those funds and then reaching retirement with either little or no pension provision left to support their retirement.

The Financial Guidance and Claims Act 2018 will come into force on 1^st June 2022.  To complement this, a trial has been conducted by the government, the FCA and Pension Wise to give people much stronger nudges towards advice and guidance.  A consultation was issued in December 2021, the results publised in January 2022 and the FCA issued is Conduct Of Business Sourcebook (COBS) rules this week.

Stronger Nudge Rules 01/06/22

Pension providers must action stronger nudge rules towards pensions advice and guidance.  If you request a pension transfer value, they will usualy be required to explain the pros and cons of financial advice v financial guidance.  In addition, they will usually be required to book you a guidance call with Pension Wise.

Consumers have the following options when they speak to their pension provider and being ‘nudged’.

1. Yes, to accept the financial guidance call but no to financial advice.  The company will then book you an appointment with Pension Wise.    The pension company is not allowed to process a pension transfer or flexible drawdown with confirmation that guidance from Pension Wise has taken place.
2. No to guidance, the consumer is taking financial advice.  There is no action required from the pension company.  The pension company will not process any pension transfer or flexible drawdown without a financial advice declaration signed by a qualified financial adviser.
3. No to financial guidamce and no to financial advice.  The pension company must ask the consumer and secure answers to a range of financial and risk questions.  The pension provider must then assess any risks that may affect you, explain those risks to you and ensure that you understand the risks.

We suggest most pension companies will avoid the 3^rd option above and will only allow or accept transfers in/out if you have sought full financial advice or in the case of smaller pensions, confirmation of guidamce from Pension Wise.

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