COBS 19.7 Retirement risk warnings1

In this section:

1. (1)

   [deleted]2

2. (2)

   “pension decumulation product” is a product used to access pension savings and includes:2

   1. (a)

      a facility to enable a retail client to make an uncrystallised funds pension lump sum payment; 2

   2. (b)

      an option to take a small lump sum payment; 2

   3. (c)

      a drawdown pension; and2

   4. (d)

      a pension annuity; 2

3. (3)

   “pension savings” is the proceeds of the client's personal pension scheme, stakeholder pension scheme, or occupational pension scheme;

4. (4)

   “retirement risk warnings” are the warnings required to be given to a retail client at step 3 of the process specified in this section;

5. (5)

   “risk factors” are the attributes, characteristics, external factors or other variables that increase the risk associated with a retail client's decision to access their pension savings using a pension decumulation product;

6. (6)

   “signpost” is the written or oral statement encouraging a retail client to use pensions guidance or to take regulated advice to understand their options at retirement which is at step 1 of the process specified in this section.

This section applies to a firm communicating with a retail client in relation to accessing their pension savings using a pension decumulation product.

This section does not apply:

1. (1)

   to a firm giving regulated advice to a retail client on options to access their pension savings;

2. (2)

   if the firm has already provided the retirement risk warnings to the retail 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.

A firm must follow the steps specified in this section at the point when the retail client has decided (in principle) to take one of the following actions (and before the action is concluded):

1. (1)

   buy a pension decumulation product; or

2. (2)

   vary their personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract to enable the client to:

   1. (a)

      access pension savings using a drawdown pension; or

   2. (b)

      elect to make one-off, regular or ad-hoc uncrystallised funds pension lump sum payments2; or

3. (3)

   receive a one-off, regular or ad-hoc uncrystallised funds pension lump sum payment2; or

4. (4)

   access their pension savings using a drawdown pension; or2

5. (5)

   withdraw the funds in full from their pension savings, reducing the value of their rights to zero.2

1. (1)

   The first step is to ask the retail client whether they have received pensions guidance or regulated advice:

   1. (a)

      if the client says that they have, the firm must proceed to step 2; or

   2. (b)

      if the client says that they have not or is unsure, the firm must explain that the decision to access pension savings is an important one and encourage the retail client to use pensions guidance or to take regulated advice to understand their options at retirement.

2. (2)

   If, after giving the explanation in COBS 19.7.8R (1)(b), the retail client does not want to access pensions guidance or take regulated advice, the firm must proceed to step 2.

Based on how the retail client wants to access their pension savings, at step 2 the firm must ask the client questions to identify whether any risk factors are present, except where COBS 19.7.9AR applies2.

2If the value of the retail client’s pension savings is £10,000 or less and there are no safeguarded benefits, the firm:

1. (1)

   is not required to ask questions to identify whether any risk factors are present; and

2. (2)

   must prepare appropriate retirement risk warnings based on the risk factors relevant to each pension decumulation product it offers to enable retail clients to access their pension savings.

2A firm may ask the client the questions required by COBS 19.7.9R before the client has decided (in principle) to take one of the actions specified in COBS 19.7.7R to access their pension savings.

2If, to complete step 2, a firm relies on information gathered prior to the client’s decision to access their pension savings, the firm must be satisfied that this information is relevant, accurate and up-to-date before giving the risk warnings at step 3.

A firm must prepare the questions required by COBS 19.7.9 R before taking the steps for the first time, and must keep the questions up to date.

At step 3:2

1. (1)

   if the value of the retail client's pension savings is £10,000 or less and there are no safeguarded benefits, based on how the retail client wants to access their pension savings, a firm must give the client the appropriate retirement risk warnings prepared under COBS 19.7.9AR(2); and 2

2. (2)

   in all other cases, a firm must give the retail client appropriate retirement risk warnings in response to the client's answers to the firm's questions.2

A firm must prepare the retirement risk warnings required by COBS 19.7.13 R in good time before taking the steps for the first time, and must keep them up to date.

When communicating the signpost and retirement risk warnings, the firm must do so clearly and prominently.

Whatever the means of communication, the firm must ensure that the retail client cannot progress to the next stage of the sale unless the relevant signpost or retirement risk warning has been communicated to the client.

Firms must record whether the retail client has received:

1. (1)

   the retirement risk warnings at step 3 of the process specified in this section;

2. (2)

   regulated advice; and

3. (3)

   pensions guidance.