COBS 19.7 Pensions nudge and retirement risk warnings

In this section:

1. (1)

   [deleted]

2. (2)

   “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;

3. (3)

   “pension savings” is the proceeds of the client’s personal 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;

7. (7)

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

8. (8)

   a reference to a “personal pension scheme” includes a stakeholder pension scheme, and for the avoidance of doubt, an FSAVC, retirement annuity contract or a pension buy-out contract.

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

1. (1)

   accessing their pension savings using a pension decumulation product; or

2. (2)

   transferring rights pursuant to COBS 19.7.7R(6) for the purpose of accessing their pension savings using a decumulation product.

This section does not apply:

1. (1) to a firm giving regulated advice, other than a targeted support service, to a retail client on options to access their pension savings;
2. (2) if the firm (other than when providing a targeted support service) 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; or
3. (3) if, as part of the provision of a targeted support service, the firm has already provided the retirement risk warnings to a retail client in relation to their decision to access their pension savings and the firm:
   1. (a) has reasonable grounds to believe that the retirement risk warnings are still appropriate for the client; and
   2. (b) has complied with steps 1 and 2 in accordance with COBS 19.7.8AR to COBS 19.7.10R.

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 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 payments; or

3. (3)

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

4. (4)

   access their pension savings using a drawdown pension;

5. (5)

   withdraw funds wholly or partly derived from flexible benefits in full from a product or scheme in their pension savings, reducing the value of all of their rights in that product or scheme (including rights in respect of any non-flexible benefits) to zero; or

6. (6)

   transfer rights (other than rights in respect of non-flexible benefits):

   1. (a)

      accrued under their existing personal pension scheme; or

   2. (b)

      accrued under their existing arrangement to a personal pension scheme,

      for the purpose of taking one of the actions in (1) to (5).

Where a retail client contacts a firm to communicate its decision (in principle) to transfer rights pursuant to COBS 19.7.7R(6), that firm (whether the retail client’s existing provider or the firm to whom they intend to transfer their rights) must take the actions in step 1.

The 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.

1. (1)

   (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.

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 applies.

If 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.

A 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.

If, 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.

1. (1) A firm may use the information provided during step 2 for the purpose of aligning a client with a pre-defined consumer segment in accordance with COBS 9B.
2. (2) When using information provided during step 2, firms will need to ensure they comply with all relevant data protection legislation and the Privacy and Electronic Communications (EC Directive) Regulations 2003 (PECR).  

At step 3:

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)

   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.

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:

1. (1)

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

2. (2)

   received regulated advice;

3. (3)

   received pensions guidance; or

4. (4)

   opted out (and did not receive regulated advice).