- 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;
- Details of the financial advantages and disadvantages of shopping around;
- An explanation of how to shop around; and
- 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’.
Looking at the ‘when’ first, we are moving away from a simple structure where letters are issued four months and six weeks before the intended retirement date (or state pension age where no retirement date has been specified), or when an annuity is purchased from a drawdown fund.
We will soon see much more regular trigger points.
From November, your clients will receive their first wake-up pack within two months of reaching their 50th birthday.
They will then receive another pack between four and 10 weeks before they reach 55, and then at five-yearly intervals until they have fully crystallised their pension.
In addition to these age-based wake-up packs, the existing requirements based around the below remain in place:
- Intended retirement date (or state pension age where none has been specified);
- Customers requesting a retirement quotation;
- And the discontinuance of a drawdown arrangement for annuity purchase.
A new requirement to issue a wake-up pack if a customer asks to access their pension savings for the first time is also introduced.
So, for example, if your client asks to access their pension for the first time a few months before their 60th birthday, the pack triggered by their 60th birthday itself may not be issued.
