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COBS 19.7 1Pensions nudge and retirement risk warnings

Definitions

COBS 19.7.1RRP

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;3

  7. (7)

    “opt out” is the retail client’s confirmation that they do not want to receive pensions guidance.3

Application

COBS 19.7.2RRP

This section applies to a firm communicating with a retail client in relation to:3

  1. (1)

    accessing their pension savings using a pension decumulation product; or3

  2. (2)

    transferring rights accrued under their existing pension scheme to another pension scheme for the purpose of accessing their pension savings using a decumulation product.3

COBS 19.7.3RRP

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.

Purpose

COBS 19.7.4GRP
  1. (1)

    The purpose of this section is to ensure that a firm, which is communicating with a retail client about a pension decumulation product:3

    1. (a)

      explains the nature and purpose of pensions guidance to the retail client;3

    2. (b)

      encourages the retail client to receive pensions guidance; and3

    3. (c)

      gives appropriate retirement risk warnings,3

    at the point when the retail client has decided how to access their pension savings.

  2. (2)

    If the retail client has not yet decided what to do,2 the firm should consider whether it is required to signpost the pensions guidance under COBS 19.4.16R2 (signposting pensions guidance) and whether it may be appropriate to provide information about the risks associated with the client’s options to access their pension savings generally2.

    2
COBS 19.7.5GRP
  1. (1)

    This section amplifies Principles 6 and 7, but does not exhaust or restrict what they require. A firm will, in any event, need to ensure that its sales processes are consistent with the Principles and other rules.3

  2. (2)

    An example of a behaviour by a firm that is likely to contravene Principle 6 and may contravene other Principles is for a firm to actively discourage a retail client from receiving pensions guidance, for example by:3

    1. (a)

      indicating in any way that receiving pensions guidance is unnecessary, would not be beneficial, or might result in unnecessary delays in accessing their pension savings; or3

    2. (b)

      obscuring, de-emphasising or underplaying in any way the explanation about the benefits of pensions guidance or any other information relevant to assisting the retail client to decide how best to access their pension savings.3

COBS 19.7.6GRP

An illustration of the steps a firm is required to take is set out in COBS 19 Annex 1G.

Trigger: when does a firm have to follow the steps?

COBS 19.7.7RRP

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; 3

    2
  5. (5)

    withdraw the funds in full from their pension savings, reducing the value of their rights to zero; or3

    2
  6. (6)

    transfer rights accrued under their existing pension scheme to another pension scheme for the purpose of taking one of the actions in (1) to (5).3

COBS 19.7.7AG

3A firm may assume that a retail client who is 50 years of age or over who decides to transfer rights accrued under their existing pension scheme to another pension scheme is doing so for the purpose of taking one of the actions in COBS 19.7.7R(1) to (5).

Pension transfer to access pension savings

COBS 19.7.7BR

3Where a retail client contacts a firm to communicate its decision (in principle) to transfer rights accrued under their existing pension scheme to another pension scheme, that firm (whether the retail client’s existing pension scheme provider or the firm to whom they intend to transfer their rights) must take the actions in step 1.

COBS 19.7.8RRP

[deleted]3

Step 1: encourage the retail client to take pensions guidance

First part of step 1: explain pensions guidance and offer to book the appointment

COBS 19.7.8AR

3The first part of step 1 is as follows:

  1. (1)

    the firm must:

    1. (a)

      explain to the retail client the nature and purpose of pensions guidance, and that they can access the guidance for free;

    2. (b)

      explain to the retail client that they can take regulated advice at their own cost; and

    3. (c)

      offer to book an appointment for them to receive pensions guidance;

  2. (2)

    if the retail client accepts the firm’s offer to book an appointment for them, the firm must take reasonable steps to book an appointment at a suitable time for the retail client;

  3. (3)

    if the firm is unable to book an appointment at a suitable time despite taking reasonable steps, or the retail client prefers to book the appointment themselves, the firm must provide the retail client with sufficient information about how to book the appointment themselves;

  4. (4)

    if the firm books the appointment for the retail client, it must provide a confirmation of all the relevant details necessary to enable the retail client to attend the appointment;

  5. (5)

    if the retail client agrees to take the guidance or elects to take regulated advice, the firm must not proceed to step 2 until the retail client confirms they subsequently received the guidance or advice;

  6. (6)

    the firm must proceed to step 2 at any point during the process in (1) to (5) if the retail client:

    1. (a)

      confirms that they have already received regulated advice and opts out; or

    2. (b)

      opts out, and confirms they do not want to take regulated advice;

  7. (7)

    if the retail client states that the reason for opting out in (6)(b) is because they already received pensions guidance prior to approaching the firm, the firm must explain to the retail client that they may still benefit from receiving the guidance again if their personal circumstances, or the value of their pensions savings, have significantly changed such that the different options described to the retail client in the guidance may be of different significance and relevance to them than when they previously received the guidance.

COBS 19.7.8BG

3For the purpose of COBS 19.7.8AR(1)(a), where a firm explains the nature and purpose of pensions guidance, the explanation should include that:

  1. (1)

    the purpose of the guidance is to help the retail client make an informed decision about what to do with their pension savings, including the different options available to the retail client to access their pension savings; and

  2. (2)

    the guidance is delivered at an appointment with an independent pensions specialist.

COBS 19.7.8CG

3Taking reasonable steps to finding a time that is suitable (in COBS 19.7.8AR(2)) may include the retail client being given adequate opportunity to revert back to the firm with dates and times that are suitable for them to attend an appointment.

Second part of Step 1: confirming whether the retail client received pensions guidance or regulated advice

COBS 19.7.8DR
  1. (1)

    3(Where the firm has completed the appropriate actions in COBS 19.7.8AR, and either booked an appointment for the retail client or the retail client booked it themselves) the second part of step 1 is for the firm to check whether the retail client subsequently received pensions guidance by:

    1. (a)

      if the appointment was booked by the firm, checking that the scheduled appointment date has passed; and only if so, asking the retail client to confirm that they attended the appointment and received the guidance; or

    2. (b)

      if the retail client had to or elected to book the appointment themselves, asking the retail client to confirm that they subsequently booked the appointment and received the guidance.

  2. (2)

    If the firm booked the appointment and the date of the scheduled appointment has not passed, the firm must explain the nature and purpose of pensions guidance again in COBS 19.7.8AR(1)(a) and remind the retail client of their scheduled appointment.

  3. (3)

    If the retail client failed to attend the appointment (booked by the firm or themselves), or failed to book their own appointment, the firm must repeat the process in COBS 19.7.8AR, and explain to the retail client at this point that the firm cannot proceed unless the retail client confirms that they have received the guidance or taken regulated advice, or opts out.

  4. (4)

    If the retail client confirms that they attended the appointment and received pensions guidance, the firm must proceed to step 2, unless the firm is aware or is made aware that the retail client’s circumstances have, or may have, changed significantly, and it appears to the firm on reasonable grounds that the retail client may benefit from a repeat of the guidance in order to consider the different options available to them in the context of their current circumstances. In that case, the firm must repeat the process in COBS 19.7.8AR.

  5. (5)

    (Where the firm has completed the appropriate actions in COBS 19.7.8AR and the retail client elected to take regulated advice), the firm must proceed to step 2 if the retail client confirms that they subsequently received the advice.

COBS 19.7.8EG

3Circumstances where the retail client may benefit from a repeat of pensions guidance, for the purposes of COBS 19.7.8DR(4)), include where, since the date of the appointment:

  1. (1)

    the firm is made aware that the retail client’s personal circumstances have changed; or

  2. (2)

    significant changes in market conditions mean that the firm is aware that, or the firm is made aware for other reasons that, the value of the retail client’s pension savings may have significantly changed,

such that the different options described to the retail client in the guidance may be of different significance and relevance to them than when they previously received the guidance, in light of the change in circumstances.

Step 2: identify risk factors

COBS 19.7.9RRP

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.

COBS 19.7.9ARRP

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.

COBS 19.7.9BRRP

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.

COBS 19.7.9CRRP

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.

COBS 19.7.10RRP

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.

COBS 19.7.11GRP

To prepare for step 2, the firm should:

  1. (1)

    identify the main risk factors relevant to each pension decumulation product it offers to enable retail clients to access their pension savings; and

  2. (2)

    prepare questions to enable it to identify the presence of those risk factors for different retail clients.

COBS 19.7.12GRP

Examples of the sorts of risk factors which relate to pension decumulation products are:

  1. (1)

    the client's state of health;

  2. (2)

    loss of any guarantees;

  3. (3)

    whether the client has a partner or dependants;

  4. (4)

    inflation;

  5. (5)

    whether the client has shopped around;

  6. (6)

    sustainability of income in retirement;

  7. (7)

    tax implications;

  8. (8)

    charges (if a client intends to invest their pension savings);

  9. (9)

    impact on means-tested benefits;

  10. (10)

    debt; and

  11. (11)

    investment scams.

Step 3: provide appropriate retirement risk warnings

COBS 19.7.13RRP

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

COBS 19.7.14RRP

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.

COBS 19.7.15GRP

If after considering the retail client's answers it is unclear whether a risk factor is present, a firm should give the client the appropriate retirement risk warning.

Communicating the signpost and retirement risk warning

COBS 19.7.16RRP

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

COBS 19.7.17RRP

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.

COBS 19.7.18GRP

For an internet sale, a firm should display the required information on a screen which the retail client must access and acknowledge as part of the sales process. It would not be sufficient for the information to be accessible only by giving the client the option to click on a link or download a document.

Record keeping

COBS 19.7.19RRP

Firms must record whether the retail client has:3

  1. (1)

    received3 the retirement risk warnings at step 3 of the process specified in this section;

  2. (2)

    received3 regulated advice;

  3. (3)

    received pensions guidance; or3

  4. (4)

    opted out (and did not receive regulated advice).3

COBS 19.7.20G

3If the firm was told by the retail client that they already received pensions guidance or regulated advice prior to approaching the firm, and therefore did not need to receive it again, the firm should not record this as an opt out. Instead, they should record this as the retail client having received pensions guidance under COBS 19.7.19R(3), or under (2) for regulated advice.