Funding retirement and the new requirements on businesses to provide retirement risk warnings

Since introducing increased pension flexibilities in 2015, including the ability to draw down large sums from their pension pots the Government has become concerned that pension savers might make poorly informed decisions about how to manage their pension, leading to an increased burden on the state following these changes.
Therefore, from 6 April 2016 the Occupational and Personal Pension Scheme (Disclosure of Information) Regulations 2013 were amended to introduce a requirement to provide retirement risk warnings in the hope that increased warnings will lead to sensible pension planning.
What is a risk warning?

  • A statement that sets out the characteristic attributes and features of an annuity, lump sum and drawdown pension, to the extent that the member is given access to them.
  • It must be provided in relation to options which the scheme offers in-house
  • It should be provided at the same time the member is provided with the means to apply for benefits
  • There is no obligation on trustees to provide individually tailored warnings in relation to contract based schemes

What should a risk warning include?

  • The attributes “that have the potential to adversely affect retirement income”
  • The factors that “have the potential to affect the appropriateness of an annuity, lump sum and drawdown pension for a member such as: the impact of health status and lifestyle choices; whether a member has dependants, is in debt or in receipt of means tested benefits; and any other relevant factors”
  • A statement “asking the member to note the importance of (a) reading the retirement risk warnings and (b) accessing pensions guidance or independent advice”

Employers and trustees should check the details of the new provisions to ensure their retirement processes fully comply.
Will this make a long-term difference to the finances of the retired and have an impact on Government finances? Let us know what you think.