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COBS 19.4 Open market options

Definitions3

COBS 19.4.1R

4In this section:

  1. (1)

    'fact sheet' means the Money Advice Service fact sheet "Your pension: it's time to choose" available on www.moneyadviceservice.org.uk or a statement provided by a firm that gives materially the same information;

  2. (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;

  3. (3)

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

  4. (4)

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

  5. (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;

  6. (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;

  7. (7)

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

  8. (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.

Application 3

COBS 19.4.2R
COBS 19.4.3G

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 at their intended retirement date and beyond; and

  4. (4)

    remind a retail client about their open market options.

Purpose

COBS 19.4.4G

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 at their intended retirement date and beyond; and

  2. (2)

    to encourage them to shop around.

Open market options statement

When?

COBS 19.4.5R
  1. (1)

    4A firm must 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;

    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 he or she is considering, or has decided:

      1. (i)

        to discontinue an income withdrawal arrangement; or

      2. (ii)

        to take a further sum of money from his or her pension to exercise open market options;

      unless the firm has given the client such a statement in the last 12 months.

  2. (2)

    If after taking reasonable steps to comply with the requirement in COBS 19.4.5R (1) (b) 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.

Contents

COBS 19.4.6R

4An open market options statement must include:

  1. (1)

    the Money Advice Service fact sheet "Your pension: it's time to choose" available on www.moneyadviceservice.org.uk or a statement provided by a firm that gives materially the same information;

  2. (2)

    a summary of the retail client's open market options, which is sufficient for the client to be able to make an informed decision about whether to exercise, or to decline to exercise, open market options;

  3. (3)

    information about the retail client's personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract provided by the firm, including:

    1. (a)

      the sum of money that will be available to exercise open market options;

    2. (b)

      whether any guarantees apply and, if so, information about how the guarantees work;

    3. (c)

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

    4. (d)

      any other information relevant to the exercise of the retail client's open market options; and

  4. (4)

    a clear and prominent statement about the availability of the 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 the pensions guidance is a free impartial service to help consumers to understand their options at retirement; and

    4. (d)

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

COBS 19.4.7G

4For the purpose of COBS 19.4.6R(1) where a firm provides its own statement as the fact sheet, it should include materially the same information in the Money Advice Service 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 19.4.8R

4An open market options statement must not include an application form for a pension decumulation product.

Reminder

COBS 19.4.9R

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)

    remind the client about the availability of the pensions guidance; and

  4. (4)

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

COBS 19.4.10R

4The reminder must not include an application form for a pension decumulation product.

Key features illustrations

COBS 19.4.11R

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 19.4.12R

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 19.4.13G

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 19.4.14R

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 19.4.15G

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 firm should:

  1. (1)

    refer to the contents of the Money Advice Service 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 Money Advice Service fact sheet;

  3. (3)

    ensure that the content, presentation or layout of any pension decumulation product information does not emphasise any potential benefits of the firm’s own products and services in a way that disguises, diminishes or obscures important information or messages contained in the fact sheet;

  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 19.4.16R
  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 19.4.5R or COBS 19.4.9R.

COBS 19.4.17G

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 19.4.18R

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 19.4.19R

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.