Draft regulations aim to help members avoid pension scams, but could increase scheme running costs
A consultation has just concluded which aims to make changes to the draft Disclosure of Information 2021 Regulations. These regulations will require trustees to “nudge” members in the direction of helpful guidance if and when they request to access or transfer their pensions. The hope is that this will reduce members’ risk to pension scammers.
Pension liberation scamming has been growing steadily over the last 15 years and has become a major issue, especially during Covid with many members more eager to make changes to maximise pension returns in the pandemic. Being pensions, the amounts of money at risk to these scams, especially nearer to retirement, are significant. The draft regulations aim to inform better decision making amongst members by making them take note of guidance provided via Pension Wise (a free government guidance service). Trustees will be required to arrange for members to contact Pension Wise and possibly to embed the Pension Wise appointment process into their scheme platform. Members making changes to their pensions would have to opt out of this prompt.
The consultation responses highlight concerns over the cost of this administrative burden, as well as inconsistencies between these draft regulations (which will affect trustees of trust-based defined contribution schemes) and the corresponding FCA requirements for contractual arrangements such as group personal pension schemes, which will add to that cost.
The consultation responses also noted that the draft regulations might be seeking to engage members at the wrong time. The initiating trigger for the guidance ‘nudge’ is a member requesting to transfer or consolidate their pension, but by this point, the member has decided on the course of action already and may just see the guidance as another hoop to jump through in an already burdensome process.
In any event, this nudging is expected over coming months, hopefully reducing the ever-growing scam business.
Read Danyal’s article in The Legal Diary.
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