UK pension schemes call for AVC stronger nudge exemption

A number of large UK pension schemes have written a joint letter to the Work and Pensions Committee (WPC) to raise concerns about the application of new stronger nudge requirements in certain circumstances.

The letter raised specific concerns in relation to defined benefit (DB) schemes with defined contribution (DC) additional voluntary contributions (AVCs), or other small DC benefits such as transfer credits; and hybrid schemes where the majority of benefits are DB.

It suggested that giving members with AVCs a stronger nudge to Pension Wise is “very likely” to result in confusion and them making decisions not in their interest, such as not taking their AVCs as part of their tax-free lump sum, as Pension Wise cannot provide guidance on AVC options within a DB arrangement.

However, the signatories confirmed that Department for Work and Pensions (DWP) has committed to giving consideration to an additional exemption to cover AVC/small hybrid DC pots, following the collection of member reaction data.

Key areas that the schemes will be looking at following this include member confusion, member complaints, and whether the new stronger nudge process is placing an administrative burden on schemes.

In addition to this, the letter suggested that DWP should collect feedback from members to ensure they are able to segregate feedback from members with primarily DB benefits from those with primarily DC benefits to help establish whether the concerns are justified.

It stated: “We know that your committee has taken a close interest in the ‘stronger nudge’ policy already and has expressed concerns that it will be insufficient to ensure that taking Pension Wise guidance becomes the norm.

“We therefore wanted to raise this additional concern with the policy from the perspective of DB and hybrid schemes, and would make the observation that while taking Pension Wise guidance should become the norm for those in DC schemes, this approach may not be appropriate for those in DB or hybrid schemes.

“As your committee continues to keep this issue under review, we would encourage you to question Ministers and regulators on the issues raised above and ensure that the impact on DB and hybrid schemes forms part of the scrutiny.”

The signatories were the BT Pension Scheme, the Universities Superannuation Scheme, TPT Retirement Solutions, BP Pension Fund, the Mineworkers’ Pension Scheme, British Coal Staff Superannuation Scheme and the Royal Mail Pension Plan.