Pensions Bulletin 2021/29
15 July 2021
- DWP consults on stronger nudge to pensions scheme members to seek pension guidance
- Pension scams – Government responds to MPs’ concerns
- FCA urges potential scam victims to ‘flip the context’
- GMP conversion guidance issued
- Occupational Pensions Stewardship Council launched
DWP consults on stronger nudge to pensions scheme members to seek pension guidance
The DWP has launched a consultation on regulations to implement a requirement that the trustees of occupational pension schemes, in respect of flexible (ie typically DC) benefits, ensure that individuals are referred to “appropriate pensions guidance” and have either received or opted out of receiving it, where they are proposing to access or transfer their DC benefits.
This ‘stronger nudge’ requirement, applicable to members aged 50 or above or their survivors, follows an FCA consultation in May on similar rules in relation to providers of contract-based DC schemes. Both requirements follow from provisions set out in the Financial Guidance and Claims Act 2018, which in turn came to pass because of worries that FCA rules and DWP regulations settled in 2015 as part of the ‘freedom and choice’ package, requiring information to be given and ‘signposting’ to pensions guidance in broadly similar circumstances, provided insufficient member protection.
Unsurprisingly, the nature of the proposed DWP regulations is very similar to the FCA’s proposed rules (see Pensions Bulletin 2021/19). In particular, in the DWP’s case, the disclosure of information regulations are amended so that when the individual has decided they wish to access or transfer their DC benefits, the trustees must:
- Refer the individual to Pension Wise guidance (which is available only to those who are aged 50 or above)
- Explain the nature and purpose of Pension Wise guidance
- Offer to book an appointment, and where the individual accepts the offer, book the appointment or provide the individual with sufficient information to book their own appointment
Where this ‘stronger nudge’ is required, the 2015 ‘signposting’ to pensions guidance is removed.
The trustees will not be able to continue to proceed with the application until the individual has told them they have received the guidance or they have received an opt-out notification from the individual.
The new requirements do not apply where the individual wishes to transfer their DC benefits to a different occupational pension schemes that does not provide DC benefits, or where their sole purpose of transferring is to consolidate their DC benefits (the DWP states that trustees can assume that potential transferees under age 50 are transferring for this reason). Other exemptions include where the individual has received Pension Wise guidance or received regulated financial advice within the last 12 months or is in serious ill-health and wishes to access their benefits as a one-off lump sum.
The law governing transfer values is amended to turn off the trustees’ duty to process a statutory cash equivalent where the above requirements have not been met.
Consultation on the DWP’s proposals closes on 3 September 2021. It appears that these new requirements will come into force on 6 April 2022, presumably at the same time as the FCA’s proposed rules which are intended to be finalised by the end of 2021.
The regulations are broadly as expected, with the only issue for consultation being whether they successfully deliver the policy intent. One issue that may need some streamlining is where an individual who wishes to transfer their DC pot to another provider triggers both the ‘nudge’ guidance and the scams guidance (see Pensions Bulletin 2021/21) at the same time. The actual guidance that will be given in either situation remains somewhat of a mystery. A further issue that will need to be bottomed out is the extent to which the 2015 signposting continues to operate.
Pension scams – Government responds to MPs’ concerns
The Government has responded to the Work and Pensions Committee’s call for “quick and decisive” action on pension scams (see Pensions Bulletin 2021/14) with an explanation of the significant activity by Government and various bodies on this issue in recent years and an indication of what is likely to happen next.
In publishing the response the Committee focusses on online scams, criticising as an “ambivalence to major sources of harm”, what now seems to be a firm decision by the Government not to include, in the Online Safety Bill, fraud facilitated through paid-for advertising, such as adverts on search engines. The Government promises instead a consultation later this year, by the Department for Digital, Culture, Media and Sport, on how to tackle harmful or misleading online advertising that can enable online fraud.
Amongst the responses to other recommendations made by the Committee are the following:
- An acceptance that “the real scale of pension scams is undoubtedly much larger than that reported to Action Fraud” and that the Government will set out a way forward for Project Bloom later in 2021, having received internal reviews by both the Pensions Regulator and DWP
- A statement that work is in progress to make it clear that the pensions industry as well as individuals should report scam concerns to Action Fraud – a webinar for pension providers is promised
- That Pension Wise is soon to be rebranded as “Money Helper Pensions”
- A statement that whilst HMRC has to collect any unauthorised payment charge that is due under the law (ie where individuals access pension savings before they are 55), it accepts that individuals will not be taxed on the money they have lost as a result of a fraud
- The existence of a ‘pension loss’ service by MaPS where individuals who have fallen victim to a pension scam can speak to a specialist who can explain what routes for redress are available
Whilst the cold-calling ban in itself appears to have been a success, the scammers communication methods have simply evolved, with online advertising now being a major ‘route to market’. Action is needed here, but as of right now, whilst the problem is acknowledged, there is no firm timescale within which to tackle it.
FCA urges potential scam victims to ‘flip the context’
The Financial Conduct Authority is urging pension savers to assess pension offers made online in the same context as they would likely do when approached in person in an everyday setting such as a trip to the shops or an afternoon in the pub.
Such context flipping is being suggested as a result of research commissioned by the FCA from which it is reported that pension savers were:
- Nine times more likely to accept advice from someone online than they would from a stranger met in person
- Five times as likely to be interested in a free pension review from a stranger online than someone in their local pub
The FCA also reports that in the first five months of 2021 nearly £2,250,000 has been reportedly lost to pension scams – a figure reported to Action Fraud – with the total amount lost likely to be much higher due to reluctance to report, or not realising a scam has taken place until potentially years later.
This concept is a useful one that could be repeated by pension schemes in their member communications. It is also a demonstration of how worried the FCA is about pension scams being conducted online. However, as we know from experience over recent years, it is regulatory action that is needed, but it is often years in the making.
GMP conversion guidance issued
Further guidance has been issued by the cross-industry GMP equalisation working group, chaired by the Pensions Administration Standards Association, this time providing examples of how GMP conversion is being used, or is being actively considered, by early adopters, explaining the issues they faced, how they addressed them and how simplification can be achieved without, in many cases, a significant impact on members.
The guidance is aimed at practitioners with the intent of showing proportionate and pragmatic ways in which the D2 method in the Lloyds case has been applied in the absence of further guidance or legislation from DWP and HMRC.
After introductory chapters covering such matters as which schemes are likely to use GMP conversion, how GMP equality can be achieved through conversion, the scope and nature of GMP conversion and some pensions taxation aspects to be aware of, the guidance then provides worked examples for six example members spread across three pension schemes. They include:
- Conversions in retirement, both before and after the GMP has come into payment
- Conversions at retirement, illustrating the potential impact pensions tax considerations and conditions in the GMP conversion legislation can have on both members and administrative processes
- Conversion in deferment, illustrating constraints on the post-conversion benefit structure that may arise from pensions tax considerations
The guidance has been welcomed by David Fairs, Executive Director for Regulatory Policy, Analysis and Advice at the Pensions Regulator and Anthony Arter, the Pensions Ombudsman.
The production of the guidance was led by Alasdair Mayes, LCP partner and Head of GMP equalisation, who comments in his blog that GMP conversion is right for some schemes but not others and, if GMP conversion is the right solution for a scheme there are two key points to consider when going down this route – the nature of the benefits provided following conversion and the impact of pensions tax rules.
Occupational Pensions Stewardship Council launched
The DWP has set up the Occupational Pensions Stewardship Council following a recommendation made by the Treasury-led Asset Management Taskforce in November 2020 (see Pensions Bulletin 2020/48).
28 pension schemes, responsible for more than £550bn of assets, have signed up to become members of this Council, whose purpose is to promote and facilitate high standards of stewardship of pension scheme assets.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.