This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.
From 6 April 2016, trustees of schemes holding "flexible benefits" (broadly money purchase and cash balance benefits) will be required to issue retirement risk warnings to members before they access their benefits. Retirement risk warnings have been "encouraged" by the Pensions Regulator since flexible benefits were introduced in April 2015 but are now to be made mandatory.
We have updated our guide on disclosure in relation to flexible benefits to take the new requirements into account.
The retirement risk warning must be given at the same time that trustees are:
- giving a member information about accessing flexible benefits on request;
- communicating with a member about accessing flexible benefits; or
- sending a retirement warm-up pack; but only
- where the information is accompanied by the means to apply to access those benefits (for example where the warm-up pack also contains an application form or a link to an online access portal).
Trustees must also give the warning where the information listed above has previously been given and they are now sending out the application form or other means to access the flexible benefits.
When sending the retirement risk warning, the trustees must also give a statement reminding the member to read the retirement risk warning and noting the importance of accessing pensions guidance or independent advice.
A retirement risk warning is a statement that sets out the characteristic attributes of the benefit to be taken and the factors that have the potential to affect the appropriateness of that benefit for a member such as:
- the impact of health status and lifestyle choices; and
- whether a member has dependants, is in debt or in receipt of means tested benefits.
- must be generic and not tailored or based on personal circumstances;
- may be limited to the features of the particular benefit the trustees are offering access to; and
- should include the characteristic attributes and features that have the potential to adversely effect the retirement income of any member or their survivors.
Only one warning in relation to any particular type of benefit need be given in any 12 month period.
A retirement risk warning need not be given where the trustees have given an “appropriate risk warning”. This can be given verbally or in writing and is a slightly watered-down version of a retirement risk warning. An appropriate risk warning is a statement that:
- sets out the risks associated with the action the member is proposing to take; and
- is based on the characteristic attributes and features of the benefit and any answers to questions the trustees have asked the member in order to identify any factors that increase those risks.
The appropriate risk warning can only be given where the member has either received pensions guidance or independent advice or the trustees have encouraged them to do so.