On 1 December 2021 the FCA published the final rules and guidance for firms on the stronger nudge to Pension Wise guidance PS21/21.  These new rules came into effect from 1 June 2022.

Background

When the 2015 “Pension freedoms” legislation was introduced, the Government recognised that many individuals would benefit from support and guidance on the required decisions when accessing their defined contribution (DC) benefits.  As a result, Pension Wise was set up as a source of free and impartial guidance about the options for accessing DC pension savings. The Government wants to ensure that individuals make informed decisions when accessing their pension benefits and therefore wants to increase the number of people that benefit from pensions guidance. The new rules and guidance from the FCA will introduce targeted measures to increase the take up of Pension Wise guidance by requiring pension providers to encourage customers to receive the guidance when they look to take benefits, and to facilitate this.

Who is affected by the new legislation?

Although the Policy Statement mainly affects FCA regulated pension providers, advice firms may also be required to nudge clients to Pension Wise where they operate on a non-advised basis.

The DWP has introduced similar but separate rules for occupational pension schemes.

When will Individuals need to be “Nudged”?

The requirement for firms to nudge is triggered, when the FCA retirement risk warning rules are triggered (COBS 19.7R) in relation to when a retail client contacts a firm to communicate its decision (in principle) to:

  • Access their pension savings using a pension decumulation product; or
  • Transfer rights accrued under their existing defined contribution pension scheme to another pension scheme for the purpose of accessing their pension savings.

Firms may assume that a client who is 50 years of age or over who decides to transfer benefits from one pension scheme to another, is doing so for the purposes of accessing their pension savings, however firms can choose to limit the scope of the nudge by taking steps to establish the reasons the customer is transferring.

Where individuals are nudged, the firm is required to keep a record of the nudge and the outcome.

When Individuals do not need to be nudged

If an individual confirms that they have already received pensions guidance, firms do not need to provide another nudge, unless the firm believes that their circumstances may have changed and they could benefit from receiving the guidance again.

Similarly, nudges do not need to be provided where the retirement risk warnings do not apply (COBS 19.7.3R), for example:

  • To a firm giving regulated advice to a client on options to access their pension savings
  • If the firm has already provided retirement risk warnings to the client in relation to their decision to access their pension savings and the firm has reasonable grounds to believe that the retirement risk warnings are still appropriate for the client.

What action needs to be taken?

Where a client has been identified as requiring the nudge, firms must then follow this process:

  1. Explain to the client the nature and purpose of pensions guidance and that they can access the guidance for free. They must offer to book an appointment for clients to receive pensions guidance and explain that they can take regulated advice at their own cost.
  2. If the client accepts the offer to book the appointment, the firm must take reasonable steps to book this at a suitable time for the client.
  3. If the firm is unable to book the appointment despite taking reasonable steps, or if the client prefers to book this themselves, the firm must provide the client with sufficient information as to how to book the appointment.
  4. If the firm books the appointment, they must ensure that the client has all the relevant details necessary to attend.
  5. If the client agrees to take guidance or elects to take regulated advice, the firm must not proceed with the application until the client confirms that they have received advice or guidance.
  6. The firm can proceed to the next step at any time, if the client either:
  • Confirms that they have already received regulated advice and opts out of guidance or;
  • Opts out of guidance and confirms that they do not want to take regulated advice. 

What does this mean for clients of Fidelity Adviser Solutions?

Fidelity Adviser Solutions is an advised platform. As such, instructions are only accepted from advisers on behalf of clients and not from clients directly. As Fidelity are not directly involved in the initial instruction and are not in communication with the client, there is no requirement for Fidelity as the provider to deliver the stronger nudge or retirement risk warnings.

What does this mean for advisers?

For advisers providing regulated advice to a client on their options to access their pension savings, and/or to transfer benefits, the rules do not apply. (COBS 19.7.3R).

However, where an adviser firm is dealing with a pension provider on behalf of the client and no advice is being given (e.g. Execution only,) the risk warnings and stronger nudge requirements would apply to the adviser firm as they are in communication with the client. The stronger nudge and risk warning requirements would not apply to Fidelity in this scenario, as we are not in communication with the client.

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