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Timeline guidance

COBS 19.4 Open market options

Definitions3

COBS 19.4.1RRP

4In this section:

  1. (1)

    'fact sheet' means the MoneyHelper7 fact sheet 5or a statement provided by a firm that gives materially the same information;

  2. (1A)

    'MoneyHelper7 fact sheet’ means the guide “Your pension: it's time to choose”, available on https://www.moneyhelper.org.uk7;5

  3. (2)

    'intended retirement date' means:

    1. (a)

      the date (according to the most recent recorded information available to the provider) when the scheme member intends to retire, or to bring the benefits in the scheme into payment, whichever is the earlier; or

    2. (b)

      if there is no such date, the scheme member's state pension age;

  4. (3)

    'open market options' means the options available to a scheme member to access their pension savings on the open market;

  5. (4)

    'open market options statement' means the information specified in COBS 19.4.6AR5, provided in a durable medium, to assist the retail client to make an informed decision about their open market options;

  6. (5)

    'pension decumulation product' is a product used to access pension savings and includes:

    1. (a)

      a facility to enable a retail client to make an uncrystallised funds pension lump sum payment;

    2. (b)

      an option to take a small lump sum payment;

    3. (c)

      a drawdown pension; and

    4. (d)

      a pension annuity;

  7. (6)

    'pension savings' is the proceeds of the retail client's personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract;

  8. (7)

    'reminder' is the requirement in COBS 19.4.9R to remind the retail client about the open market options statement and the availability of pensions guidance;5

  9. (7A)

    ‘retirement risk warnings’ are the warnings required to be given to a retail client in accordance with COBS 19.4.8ER(2); 5

  10. (8)

    'signpost' is the requirement in COBS 19.4.16R to provide a written or oral statement encouraging a retail client to use pensions guidance or to take regulated advice to understand their options at retirement; and5

  11. (9)

    ‘single page summary document’ is a document produced by a firm that contains the information specified in COBS 19.4.6CR. 5

Application 3

COBS 19.4.2RRP
COBS 19.4.3GRP

4This section specifies the circumstances where a firm must:

  1. (1)

    provide a retail client with an open market options statement;

  2. (2)

    signpost pensions guidance;

  3. (3)

    provide information to enable a retail client to make an informed decision about how to access their pension savings;5

  4. (4)

    remind a retail client about their open market options; and5

  5. (5)

    provide appropriate warnings about the risks generally associated with the retail client’s options for accessing their pension savings. 5

Purpose

COBS 19.4.4GRP

4The purpose of this section is to ensure that firms provide retail clients with timely, relevant and adequate information:

  1. (1)

    to enable them to make an informed decision about their options for accessing pension savings;5 and

  2. (2)

    to encourage them to shop around.

Open market options statement

When?

COBS 19.4.5RRP

[deleted]5

COBS 19.4.5AR
  1. (1)

    5A firm must give a retail client an open market options statement:

    1. (a)

      within two months after the client reaches 50 years of age; and

    2. (b)

      between four to ten weeks before the client reaches each birthday that is at five year intervals after the client’s 50th birthday.6

    3. (c)

      [deleted]6

  2. (1A)

    The requirement in (1) does not apply if:6

    1. (a)

      the firm has given the client such a statement in the last 12 months; or6

    2. (b)

      the client’s pension fund is fully crystallised; or6

    3. (c)

      the firm has received a request from the client for their pension fund to be paid by way of a serious ill-health lump sum and that request has not been rejected. 6

  3. (2)

    A firm must also give a retail client an open market options statement:

    1. (a)

      if the client asks a firm for a retirement quotation more than four months before the client’s intended retirement date; or

    2. (b)

      if a firm does not receive such a request for a retirement quotation, between four and six months before the client’s intended retirement date; or

    3. (c)

      if a retail client with open market options tells a firm that they are considering, or have decided:

      1. (i)

        to discontinue an income withdrawal arrangement; or

      2. (ii)

        to take a further sum of money from their pension savings to exercise open market options; or

    4. (d)

      if the retail client requests to access their pension savings for the first time, except where the retail client requests that their pension fund is paid to them by way of a serious ill-health lump sum6;

  4. (2A)

    The requirement in (2) does not apply if:6

    1. (a)

      the firm has given the client such a statement in the last 12 months; or6

    2. (b)

      the firm has received a request from the client for their pension fund to be paid by way of a serious ill-health lump sum and that request has not been rejected. 6

  5. (3)

    If after taking reasonable steps to comply with the requirements in (1) or (2) a firm has been unable to provide a retail client with an open market options statement, the firm must provide the statement in good time before it sells a pension decumulation product to the client.

  6. (4)

    Where a firm’s obligation to send an open market options statement is only dis-applied because of a client’s request that their pension fund is paid to them by way of a serious ill-health lump sum (see COBS 19.4.5AR(1A)(c) or COBS 19.4.5AR(2A)(b)), but that request is subsequently rejected, a firm must send to the client an open market options statement within two months of the decision to reject. 6

Contents

COBS 19.4.6RRP

[deleted]5

4
COBS 19.4.6AR
  1. (1)

    5An open market options statement given in accordance with COBS 19.4.5AR(1)(a) must include:

    1. (a)

      a single page summary document; and

    2. (b)

      appropriate retirement risk warnings.

  2. (2)

    All other open market options statements must include:

    1. (a)

      a single page summary document;

    2. (b)

      a fact sheet;

    3. (c)

      appropriate retirement risk warnings;

    4. (d)

      a statement about whether any guarantees apply and, if so, how they work; and

    5. (e)

      any other information to enable the retail client to be able to make an informed decision about whether to exercise, or to decline to exercise, open market options.

Single page summary document

COBS 19.4.6BR
  1. (1)

    5The single page summary document must not exceed a single side of A4-sized paper when printed.

  2. (2)

    The requirement in (1) does not apply if a retail client asks for the information to be provided in an accessible format and the fulfilment of that request will necessitate the use of more than a single side of A4-sized paper.

COBS 19.4.6CR

5The single page summary document must include the following information:

  1. (1)

    the retail client’s name;

  2. (2)

    the retail client’s intended retirement date;

  3. (3)

    the firm’s name;

  4. (4)

    if the retail client makes or receives employment-related contributions:

    1. (a)

      the employer’s name; and

    2. (b)

      the amount that the employer and employee have contributed to the retail client’s pension savings in the last year (if applicable);

  5. (5)

    the current value of the retail client’s pension savings;

  6. (6)

    if relevant, a statement warning the retail client that the current value of their pension savings may be subject to early exit charges or other withdrawal charges when accessed;

  7. (7)

    a statement about whether any guarantees apply and, if so, where to find out further information;

  8. (8)

    any other relevant special features, restrictions, or conditions that apply, such as (for with-profits funds) any market value reduction conditions in place, and how to find out further information;

  9. (9)

    if the document is required to be provided up to six months before the retail client’s intended retirement date, a statement asking the retail client to consider whether they are saving enough to meet their needs at retirement;

  10. (10)

    a clear and prominent statement about the availability of pensions guidance including:

    1. (a)

      how to access the pensions guidance and its contact details;

    2. (b)

      that pensions guidance can be accessed on the internet, telephone, or face to face;

    3. (c)

      that pensions guidance is a free impartial service to help consumers to understand their options at retirement;

    4. (d)

      a recommendation that the client seeks appropriate guidance or advice to understand their options at retirement; and

    5. (e)

      the government logo and pensions guidance logo next to or above the statement.

COBS 19.4.7GRP

4For the purpose of COBS 19.4.6AR(2)(b)5 where a firm provides its own statement as the fact sheet, it should include materially the same information in the MoneyHelper7 fact sheet about:

  1. (1)

    the following options for accessing pensions savings, even if they are not offered by the firm:

    1. (a)

      pension annuity;

    2. (b)

      drawdown pension; and

    3. (c)

      uncrystallised funds pension lump sum payments;

  2. (2)

    the main features, benefits and risk factors relevant to the options for accessing pensions savings, such as:

    1. (a)

      tax implications;

    2. (b)

      what happens in the event of the client’s death;

    3. (c)

      the loss of any guarantees;

    4. (d)

      the client’s state of health;

    5. (e)

      the client’s lifestyle choices;

    6. (f)

      whether the client is married or has dependants; and

    7. (g)

      sustainability of income over time;

  3. (3)

    how to access financial advice and information about the different ways in which the client might be able to access their pension savings;

  4. (4)

    the availability of free, impartial guidance from the pensions guidance; and

  5. (5)

    the client’s option to shop around, with an explanation of how they may do so.

COBS 19.4.8RRP

4An open market options statement must not include financial promotions5 for a pension decumulation product.

Retirement risk warnings

COBS 19.4.8AG

5This section sets out the steps a firm must take to prepare and identify appropriate retirement risk warnings.

Step 1: prepare retirement risk warnings

COBS 19.4.8BR

5A firm must prepare the retirement risk warnings before providing the appropriate retirement risk warnings required by COBS 19.4.6AR for the first time, and must also keep the warnings up to date.

COBS 19.4.8CR

5To prepare retirement risk warnings a firm must:

  1. (1)

    identify the main risk factors relevant to retail clients’ exercise of open market options; and

  2. (2)

    prepare appropriate retirement risk warnings in relation to each of those risk factors.

COBS 19.4.8DG
  1. (1)

    5Examples of the risk factors relevant to retail clients’ exercise of open market options include:

    1. (a)

      the client’s age and intended retirement date;

    2. (b)

      the amount of the client’s pension savings;

    3. (c)

      if there are ongoing employer contributions;

    4. (d)

      the existence of means-tested benefits;

    5. (e)

      protection under the compensation scheme; and

    6. (f)

      the client’s need to review, make further decisions about, or take further actions in relation to their pension savings depending on their intended investment objectives.

  2. (2)

    Firms should also have regard to the examples of risk factors which relate to pension decumulation products at COBS 19.7.12G.

Step 2: identify which warnings to give a retail client

COBS 19.4.8ER

5To provide appropriate retirement risk warnings a firm must:

  1. (1)

    using information held about the retail client and their open market options, identify what risk factors are most likely to be present; and

  2. (2)

    provide appropriate retirement risk warnings to the retail client in relation to the risk factors identified in (1).

COBS 19.4.8FG

5If it is unclear whether a risk factor is present, a firm should assume that the risk factor is present and give the client the appropriate retirement risk warning.

COBS 19.4.8GG

5COBS 19.4.8J requires a firm to use only one A4-sized page for a client’s retirement risk warnings. A firm should prioritise those risk warnings it considers to be the most relevant to the retail client’s exercise of open market options.

COBS 19.4.8HR

5Retirement risk warnings which are provided between:

  1. (1)

    four to ten weeks before the client reaches 55 years of age; and

  2. (2)

    seven months before the retail client’s intended retirement date,

must include a clear and prominent statement that accessing pension savings at this point in time may not be the best option.

COBS 19.4.8IR

5The firm must provide the retail client with the following information separately to the retirement risk warnings:

  1. (1)

    the key assumptions that were used to prepare the retirement risk warnings; and

  2. (2)

    the personal data it relied on to provide the retirement risk warnings.

Presentation of retirement risk warnings

COBS 19.4.8JR
  1. (1)

    5The retirement risk warnings must not exceed a single side of A4-sized paper when printed.

  2. (2)

    The requirement in (1) does not apply if a retail client asks for the retirement risk warnings to be provided in an accessible format and the fulfilment of that request will necessitate the use of more than a single side of A4-sized paper.

Reminder

COBS 19.4.9RRP

4At least six weeks before the retail client’s intended retirement date the firm must:

  1. (1)

    remind the client about the open market options statement;

  2. (2)

    tell the client what sum of money will be available to exercise open market options;

  3. (3)

    provide the client with a clear and prominent statement recommending that the client uses the pensions guidance and that appointments are available;5 and

  4. (4)

    recommend that the client seeks appropriate guidance or advice to understand their options at retirement.

COBS 19.4.10RRP

4The reminder must not include financial promotions5 for a pension decumulation product.

Key features illustrations

COBS 19.4.11RRP

4A firm must not provide a key features illustration to a retail client for a pension decumulation product, excluding a small lump sum payment, unless:

  1. (1)

    it is required to provide the client with the key features illustration in accordance with the rules on providing product information to clients (COBS 14.2.1R);

  2. (2)

    without prompting by the firm, the client requests the key features illustration;

  3. (3)

    it includes a key features illustration for each of the pension decumulation product options that it offers; or

  4. (4)

    it includes multiple key features illustrations as indicative representations of each of the pension decumulation product options that it offers.

Communications about annuity options

COBS 19.4.12RRP

4When a firm communicates with a retail client about their pension annuity options the firm must provide the client with information about how their circumstances can affect retirement income calculations and payments for pension annuities offered by the firm and on the open market.

COBS 19.4.13GRP

4For the purpose of COBS 19.4.12R, examples of the circumstances which can affect retirement income calculations and payments include:

  1. (1)

    the client’s marital status;

  2. (2)

    whether the client has dependants;

  3. (3)

    whether the pension annuity provides a fixed, increasing or decreasing income;

  4. (4)

    the certainty of income associated with an annuity;

  5. (5)

    the client’s state of health; and

  6. (6)

    the client’s lifestyle choices.

Communications about drawdown and uncrystallised funds pension lump sum options

COBS 19.4.14RRP

4When a firm communicates with a retail client about their drawdown pension and uncrystallised funds pension lump sum options, the firm must provide the client with such information as is necessary for the client to make an informed decision including, where relevant, information about:

  1. (1)

    how the remaining fund is invested;

  2. (2)

    sustainability of income over time including;

    1. (a)

      the extent to which any income is guaranteed; and

    2. (b)

      implications of full encashment on the client’s retirement income;

  3. (3)

    the need to review, make further decisions about, or take further actions during the life of the pension decumulation product;

  4. (4)

    impact on means-tested benefits;

  5. (5)

    the effect of costs and charges on the client’s income; and

  6. (6)

    tax implications.

Communications about options to access pension savings

COBS 19.4.15GRP

4A firm should ensure that when it makes any communication with a retail client concerned with the client’s options to access their pension savings it has regard to the fair, clear and not misleading rule, the client’s best interests rule and Principles 6 and 7. In particular a firm5 should:

  1. (1)

    refer to the contents of the MoneyHelper7 fact sheet to identify what information might assist the client to understand their options;

  2. (2)

    consider whether it needs to include or refer to any information contained in the MoneyHelper7 fact sheet;

  3. (3)

    ensure that the content, presentation or layout of any:5

    1. (a)

      pension decumulation product information; or 5

    2. (b)

      information provided in accordance with COBS 19.4.6AR(2)(e), including information accessed via hypertext links or online calculators, 5

    does not disguise, diminish or obscure important information or messages contained in the fact sheet or the single page summary document;5

  4. (4)

    prominently highlight the ability to shop around and state clearly that other providers might offer pension decumulation products that are more appropriate for the client’s needs and circumstances and may offer a higher level of retirement income;

  5. (5)

    present information in a logical order, using clear and descriptive headings and where appropriate cross-references and sub-headings to aid navigation; and

  6. (6)

    where possible, use plain language and avoid the use of jargon, unfamiliar or technical language or, where this is not possible, provide easily accessible accompanying explanations in plain language.

Signposting pensions guidance

COBS 19.4.16RRP
  1. (1)

    4When a firm communicates with a retail client about the retail client's personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract which is provided by the firm, unless the circumstances in (2) apply, the firm must:

    1. (a)

      refer to the availability of the pensions guidance;

    2. (b)

      offer to provide the client with information about how to access the pensions guidance; and

    3. (c)

      include a recommendation that the client seeks appropriate guidance or advice to understand their options at retirement.

  2. (2)

    A firm is not required to provide the client with the statement required in (1) where:

    1. (a)

      the firm communicates with the client for a purpose other than:

      1. (i)

        encouraging the client to think about their open market options; or

      2. (ii)

        facilitating access to the client's pension savings; or

    2. (b)

      the client has already accessed the pensions guidance; or

    3. (c)

      the client has already received advice from a firm on their open market options, for example from an independent financial adviser; or

    4. (d)

      the firm is providing the client with an open market options statement or six-week reminder in accordance with COBS 19.4.5AR5 or COBS 19.4.9R.

COBS 19.4.17GRP

4An example of behaviour by or on behalf of a firm that is likely to contravene the client's best interests rule or Principle 6 and may contravene other Principles is for a firm to actively discourage a retail client from using the pensions guidance, for example by:

  1. (1)

    leading the client to believe that using the pensions guidance is unnecessary or would not be beneficial; or

  2. (2)

    obscuring the statement about the availability of the pensions guidance or any other information relevant to the exercise of open market options.

Tax implications

COBS 19.4.18RRP

4If a firm receives an application from a retail client to access some or all of their pension savings, the firm must provide the client with a description of the tax implications before the client accesses their pension savings.

COBS 19.4.19RRP

4A firm is not required to provide the information in COBS 19.4.18R where it is provided in accordance with COBS 14.2.1R.