One of our clients recently received this note from a SIPP provider.

“You may already be aware that 1st June 2022 saw new FCA rules (Policy Statement PS21/21) come into force which require all pension providers to give clients a stronger ‘nudge’, in certain circumstances, towards guidance from the government’s Pension Wise service and to capture their preference.  

Although this is mainly aimed at people not taking regulated advice on their pensions (and therefore we expect most of your clients to opt out of this), it does apply to everyone in the below circumstances. Therefore you will notice some changes to some of our forms and an additional, temporary, form that you’ll probably need to use for a short while.

What are the circumstances to nudge?

• Where the client is over 50 and is transferring crystallised funds into a SIPP, or they are transferring with a view to crystallising shortly afterwards
• Where the client is over 50 and transferring out to another provider
• Where the client is crystallising funds to access a tax-free lump sum and/or pension

What are our new FCA obligations?

• Refer them to Pension Wise guidance
• Explain the nature and purpose of this guidance
• Offer to book them an appointment with Pension Wise
• Record if they wish to opt out from taking Pension Wise guidance
• Re-nudge them to Pension Wise guidance if we are aware their circumstances have changed significantly”

Is this true?

Our client contacted ATEB for confirmation on this, suggesting that it seemed “… a bit crazy to refer clients to Pension Wise after they’ve had a personal recommendation report from us!”

We confirmed that the SIPP provider had indeed interpreted the new requirements correctly. However, it is worth clarifying a couple of points

First, although the word ‘transfer’ is used, the SIPP provider was only following the unhelpful terminology of the policy statement which mostly refers to transfers when it means ‘switches’  as the new requirements ONLY APPLY TO DC TO DC switches and NOT DB to DC transfers! The FCA normal terminology differentiates these two situations by reserving the transfer word for DB to DC and referring to DC to DC as switching. A quick look at the underlying Act which these new rules are trying to satisfy (Financial Guidance and Claims Act 2018) reveals that the transfer word is used there for both transfers and switches.

The rules require a nudge for all individuals who apply to draw benefits or to ‘transfer’ (switch!) and who may be intending  to draw benefits but only those over 50. This is rationalised thus –

“The Act requires transferring consumers to be nudged. So we are proceeding with the transfers trigger, as consulted on in CP21/11. Our nudge and retirement risk warnings rules apply when a consumer wishes to access their pension savings by using one of the decumulation options. In the case of transfers, providers may need to take additional steps to establish this, for example, asking the consumer how they wish to access their pension after transferring. We are retaining in guidance the age 50+ as a proxy for consumers transferring to access pension savings. While we understand the feedback, the guidance allows consumers to be nudged at the earliest age they are eligible to take Pension Wise guidance having made a decision in principle about how they want to access their savings. It should be noted that our age proxy is guidance and may be applied where the reason for a transfer is not known (see paragraph 2.7). We recognise that if firms take a blanket approach and nudge all consumers aged 50+, this may mean that consumers are nudged when they are transferring for reasons other than to access their savings. As above, providers can choose to limit the scope of the nudge by taking steps to establish the reasons consumers are transferring. The Act requires that providers should not proceed with an application unless the requirements to nudge have been fulfilled, and the consumer has confirmed receipt of guidance or opted out. For transfers, this is limited to DC to DC transfers, or switches, rather than DB to DC transfers.”

AND

“To align closely with the intention of the legislation, which is aimed at savers accessing pensions, we added guidance that providers can assume that consumers over 50 who are transferring are doing so for the purpose of accessing their pension savings. This was because, in most circumstances, those transferring before age 50 would not be eligible for Pension Wise guidance and so should not be nudged.”

AND

“We continue to consider that the nudge should be delivered to all consumers. This includes those who have previously received guidance or advice as it may still be beneficial to these consumers. Where a consumer states that their reason for opting out from the guidance offer is because they’ve already received guidance previously, our final rules require providers to explain that the consumer may benefit from receiving guidance again under certain circumstances. In particular, where their personal circumstances, or the value of their pensions savings, have significantly changed such that the different options described to them in the guidance may be of different significance and relevance to them than when they previously received the guidance. We do not agree with the feedback that this could be seen to doubt the validity of the guidance or advice they previously received. Our rules allow providers to proceed with an application if the consumer does not wish to take up the guidance offer (opts out).”

So, that at least explains the situation – even if it remains a little bit ‘crazy’.