From 6 April 2016, trustees of occupational pension schemes holding “flexible benefits” (broadly money purchase and cash balance benefits) are obliged to provide a “retirement risk warning” to members prior to them accessing their benefits.
Since April 2015, when the new pension flexibilities were introduced, pension scheme trustees have been encouraged by the Pensions Regulator to provide members with generic risk warnings about the main retirement options when they are deciding to either take flexible benefits or transfer them to another scheme or provider.
Amendments to the Occupational and Personal Pension Scheme (Disclosure of Information) Regulations 2013 make retirement risk warnings mandatory from this month.
The retirement risk warning
The retirement risk warning is essentially a generic, non-tailored statement that sets out the characteristic attributes of the benefit to be taken and the factors that may potentially affect the appropriateness of that benefit for a member, for example, the impact of health status and lifestyle choices, whether a member has dependants, is in debt or in receipt of means tested benefits.
Risk warnings need only cover options that the scheme offers rather than covering all the options possible under the pensions flexibilities.
The Trustees must also give a statement asking the member to note the importance of reading the retirement risk warning and accessing pensions guidance or independent advice.
Timing
The retirement risk warning must be provided broadly at the same time as the member is given information about accessing flexible benefits (or has been given such information previously) and is also given the means to apply to access their benefits, for example, via an application form or online access.
Trustees only need to give one retirement risk warning in relation to any particular type of benefit in any 12 month period.
Trustees do not need to give a retirement risk warning where an “appropriate risk warning” has already been provided. An “appropriate risk warning” is a statement (verbal or written) which sets out the risks associated with action the member proposes to take; and is based on the characteristic attributes and features of the benefit and answers to questions the trustees have asked the member to identify any factors/variables that increase those risks. Such a warning can only be given if the member has received pensions guidance/independent advice or has been encouraged by the trustees to do so.
Comment
The final regulations helpfully remove the original proposed fixed timescale to provide risk warnings within seven days of the trustees becoming aware that the member was considering taking their benefits flexibly.
For trustees already following the Regulator’s guidance, there should not be too much change, however schemes should review their risk warning processes to make sure they are compliant with the new statutory requirements.