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Rachel Vahey: Don’t sleep through changes to wake-up packs

The way providers contact clients about their retirement income options is significantly changing from November this year. Providers are going to be getting in touch with clients on a much more regular basis, and from a much earlier age, and will be clearly spelling out the risks they face.

The change stems from the Retirement Outcomes Review the FCA has been working on over the last few years. The FCA is concerned about the number of non-advised clients entering drawdown, and worries they don’t understand the nature of the product they have bought or the risks they face.

The Retirement Outcomes Review has resulted in two big policy changes, both aimed at non-advised clients, but affecting advised clients as well. One of these is the introduction of investment pathways – the final rules for which were announced at the end of July. From August next year, non-advised drawdown clients will be offered investment options tailored to four different retirement options, such as not having any plans to touch their drawdown fund in the next five years. Advisers working with their clients need to be aware of these new pathways — the FCA has made it clear advisers must consider available pathways solutions when they make their suitability assessment for their clients.

The other big policy change is to the frequency and content of wake-up packs. Currently, providers have to send clients wake-up packs a few months before their intended retirement date (including a reminder letter). The pack has to include an explanation of the open market option, and that the customer might get a better deal by shopping around. It also has to include a ‘factsheet’ (read: chunky brochure) from the Money Advice Service.

From November, however, this will change. Providers will have to send out an initial wake-up pack at age 50, and then one every five years until the client has fully crystallised their pension fund, even if this is beyond age 75.

But it’s not only birthdays when providers have to send out this information. They also have to send it out when the client approaches their intended retirement date, and when they take certain action such as requesting a retirement quote and crystallising all or part of their pension. Providers also have to send out a pack when the client tells them they are ‘considering or have decided to discontinue an income withdrawal arrangement’. This could mean they have chosen to buy an annuity or cash in the remaining drawdown fund. Packs don’t have to be sent out if the client has received one in the last 12 months.

Triggers for new wake-up packs

Age-related triggers Action-related triggers
Within two months of reaching age 50 When the client asks for a retirement quote (if that’s more than six months before intended retirement date)
Four to ten weeks before reaching age 55 and every five years after that until pension fund is fully crystallised When the client is considering or decided to stop an income withdrawal arrangement
Four to six months before intended retirement age When the client is considering or has decided to take further benefits from their pension
When the client requests to access benefits for the first time.
Packs do not have to be sent out if a client has received one in the previous 12 months

It’s not just the frequency of the pack that is changing but also the content. The pack must give a single page summary including the value of the fund, any contributions paid in over the last year, and information such as any guarantees or exit charges that apply. It must clearly highlight guidance is available from Pension Wise, and for all packs (except the one sent out at age 50) they must include the chunky brochure from MAS.

Interestingly, all packs also have to include retirement risk warnings, and these have to be tailored by the provider for the different packs being sent out. The risk warnings sent out to someone celebrating their 50th birthday should not be the same as the ones sent out to a 75-year-old. The warnings should also be tailored according to what information a provider holds about a client. Providers have a free rein to include whatever risk warnings they think are the most important. But most will cover areas such as tax, pension scams, contributions, and investment risk.

Although these new requirements are aimed at helping non-advised clients make better decisions, the new wake-up packs will be sent out to all clients, including those who are advised. Understanding these new wake-up pack requirements will help advisers design their own communication strategy for how and when they approach clients to set their retirement income plan. Advisers should be aware the ‘conversations’ providers have with clients are going to kick off much earlier. They should also know the level of information providers will give clients and the accompanying risk warnings.

Rachel Vahey is an independent pensions consultant



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