As of 1 June 2022, new government regulations in the Pensions Schemes Act 2021 have made it a requirement for both the FCA and DWP to implement a stronger nudge to pension guidance. These changes mean that pension schemes must give customers seeking to access their savings a stronger nudge towards Pension Wise guidance or regulated financial advice. Pension Wise is a government-instigated service provided by MoneyHelper, that offers free and impartial guidance to consumers about their pension options.  

The changes to the rules stem from the government trying to increase the uptake of pension guidance in the UK and deliver this as a regular part 20 used Pension Wise guidance.  of the application process to access pension benefits. Figures from the FCA suggest that only 14% of 674,000 pension pots accessed in 2019/20 used Pension Wise guidance. 

Additionally, increased pension scams with fake websites, texts and online adverts are being used to persuade pension savers to transfer their pension savings or release funds. In 2019, cold calling about pensions was made illegal; however, scammers have found new and elaborate ways of exploiting vulnerabilities through social media or will use friends and family to reach clusters of people; this was even more prominent during COVID-19.  

Providing customers with invaluable guidance will help them to understand the retirement decision-making process and help to reduce pension fraud for people who can't afford independent financial advice.  

Initially, the government had published plans for the stronger nudge initiative in 2020, after behavioural trials uncovered that savers were more inclined to seek guidance after receiving a stronger nudge from their provider. However, feedback from industry experts revealed that regulations needed to consider the different possible customer journeys. Additionally, there were concerns that customers could receive the stronger nudge repeatedly for the same transfer request. Therefore, the new stronger nudge regulations reflect customers’ varying requirements and ensure that the nudge is not overused.  

The new rules make certain that all beneficiaries over the age of 50, who contact their pension scheme either to request access to their pension benefits or to transfer those benefits to access their pension flexibly, will be given a stronger nudge to pension guidance. Providers are now required to:  

  • Refer customers to Pension Wise guidance or regulated financial advice. 

  • Explain the nature and purpose of Pension Wise guidance. 

  • Offer to book a Pension Wise appointment. 

  • Provide details of how to do so to customers wishing to book an appointment themselves. 

  • Confirm and record the outcome of the nudge as part of their application. 

There are critical differences in the rules between the FCA (retail workplace and pensions schemes) and the DWP (occupational pension schemes) regarding how consumers can opt-out of any guidance and which scheme(s) should be providing the nudge, which may cause some confusion. For example: 

  • The FCA rules allow consumers to opt-out using the same communication as their schemes used to initiate contact.  

  • The DWP rules require a separate communication or form to be completed unless a specified exemption exists.  

  • FCA regulated schemes must nudge when the consumer has communicated a decision in principle about how to access their savings. This is regardless of whether the scheme is ceding or receiving a transfer. 

  • The Pension Regulator (TPR) schemes must nudge when the consumer applies or communicates about an application to transfer or receive flexible benefits unless (a) the consumer or a representative confirms that another scheme has already nudged, or (b) the scheme is ceding benefits to an FCA-regulated Scheme.

Criterion’s Common Declarations help facilitate pension transfers and streamline processes. They do this by identifying data and statements from the consumer by the ceding scheme to be collected on that scheme's behalf as part of the receiving scheme's transfer application process. This means that transfers can be completed in many cases without the ceding scheme needing to make additional contact with the consumer, thus reducing unnecessary communication and transfer delays and enabling pension providers to focus on higher-value activities.  

Criterion collaborated with the Common Declaration Working Group (CDWG) to provide an analysis of the Common Declarations to support new stronger nudge rules and regulations. The CDWG agreed that the changes would only apply to the Common Transfer Declarations. The group also decided that the wording relating to transfer purpose should be extended to refer to the receiving arrangement supporting drawdown. The changes to the Common Transfer Declarations have been implemented and published on the Criterion website – this small change will make a significant impact. 

These Standards are FREE to use for pension schemes and their administrators – sign up to our website to get access.