PensionsJul 15 2019

Waking up to wake-up pack requirements

  • Describe the history of the open market option.
  • List the Retirement Outcome Review changes.
  • Identify the impact this will have on advisers.
  • Describe the history of the open market option.
  • List the Retirement Outcome Review changes.
  • Identify the impact this will have on advisers.
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Approx.30min
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Waking up to wake-up pack requirements

The most significant intervention until recently came in 2002, when the then Financial Services Authority’s Traded Endowment Policy and Open Market Option Disclosure Requirements Instrument introduced the requirement for providers to issue a ‘wake-up letter’ to a pension scheme member at least four months before that customer’s intended retirement date, and also where the customer asked for a retirement quotation if this was more than four months before that date.

The information which had to be provided with the wake-up letter included:

  1. An explanation of the open market option, including the availability of different annuity types and rates, and that the customer might get a better deal by shopping around;
  2. Details of the financial advantages and disadvantages of shopping around;
  3. An explanation of how to shop around; and
  4. A recommendation to take advice.

Firms were told they could meet the requirements by sending a copy of a ‘Your pension – it’s time to choose’ factsheet, then published by the FSA.

In addition to the main wake-up letter, providers were also required to issue a reminder letter at least six weeks before their customer's likely retirement date.

The reminder had to include an estimate of the fund value that was likely to be available to be transferred or to provide an income at the customer’s retirement date.

Since its introduction in 2002 several attempts have been made, both by regulators and within financial services, to improve the effectiveness of the wake-up letter and the take-up of the open market option.

These have included the introduction of annuity comparison sites, improvements in the content of web-based and written material available from the likes of The Pensions Advisory Service, and the Association of British Insurers’ Code of Conduct on Retirement Choices, which became effective from March 2013.

The introduction of the pension freedoms also saw the launch of Pension Wise.

While these supplementary initiatives have been launched, the timing requirements and contents themselves have remained largely unchanged since 2002.

The only significant change came in 2007, when Mifid saw the introduction of a requirement to issue an open market option pack when an income withdrawal arrangement was discontinued for the purposes of buying an annuity. 

That lack of change will soon come to an end, with the Financial Conduct Authority's Retirement Outcomes Review acting as a catalyst for a re-think of the requirements, applicable from November 2019.

Regular trigger points

Broadly speaking, the changes which we will see later this year can be broken down into the ‘when’ and the ‘what’.

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