COBS 19.4 Open market options

In this section:

1. (1)

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

2. (1A)

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

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 19.4.6AR, 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;

9. (7A)

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

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; and

11. (9)

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

This section applies to a firm which operates a retail client’s personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract.

1. (1)

   A 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.

   3. (c)

      [deleted]

2. (1A)

   The requirement in (1) does not apply if:

   1. (a)

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

   2. (b)

      the client’s pension fund is fully crystallised; or

   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.

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 sum;

4. (2A)

   The requirement in (2) does not apply if:

   1. (a)

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

   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.

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.

1. (1)

   An 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.

1. (1)

   The 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.

The 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.

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

A 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.

To 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.

To 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).

Retirement 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.

The 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.

1. (1)

   The 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.

At 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; and

4. (4)

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

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

A 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.

When 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.

When 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.

1. (1) When 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 (other than a targeted support service) 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 19.4.5AR or COBS 19.4.9R.

1. (1)

   When 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 19.4.5AR or COBS 19.4.9R.

1. (1) A firm may inform the client about the availability of a targeted support service in addition to the information in COBS 19.4.16R(1).
2. (2) When doing so, firms will need to ensure they comply with all relevant data protection legislation and the Privacy and Electronic Communications (EC Directive) Regulations 2003 (PECR).

If 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.

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