“Wake-up” packs: The FCA alarm clock for Pensions

The sound of an alarm clock going off usually sends cold shivers down the back, however receiving a “wake-up” pack need not be so alarming. The FCA introduced the new wake-up packs in November of 2019 and they are aimed at ensuring consumers receive timely, relevant and adequate information about their retirement options to enable them to make an informed decision about accessing their pension savings.

The FCA believes that Government pension freedoms introduced in 2015 could mean that consumers will now be having to make increasingly complicated choices about their pensions and will need help. The FCA has introduced a number of measures to help consumers make decisions around their pensions and are introducing further measures in 2021 (Investment pathways, which we will write about in a subsequent update). Open market option statements (or “wake-up” packs as they are commonly known) are part of the measures already introduced and will be discussed in more detail below.

When?

A firm is required to send a wake-up pack to a consumer within two months of the consumer reaching the age of 50, following this the firm will need to send additional wake-up packs between 4 –10 weeks before the client reaches each birthday at 5 year intervals after the clients 50th birthday (so every 5 years). The wake-up packs can also be sent to a consumer which includes, among others when the consumer asks for a pension quote, 4-6 months before the consumer’s retirement date and any time the consumer takes money out of their pension

These wake-up packs are given to consumers earlier and at an increased rate compared to the previous method, which was only sent to consumers around 6 months before their retirement date. With consumers receiving earlier warning and more frequent reminders through these wake-up packs it is expected that they will be able to make better informed decisions not only about their pensions but about savings in the years leading up to retirement.

What?

So what’s in the pack? The FCA has moved away from long, many paged and often confusing documents that might deter consumers from reading them and therefore not understanding or considering their options. The new wake-up packs will contain the following information:

• A single page summary document;

• A fact sheet;

• Appropriate retirement risk warnings;

• A statement about whether any guarantees apply and, if so, how they work; and

• Any other relevant information to enable the consumer to be able to make informed decisions about their options.

This new format is designed to be a lot less complicated and easier to understand for clients.

Conclusion

These wake-up packs will be provided sooner, at more frequent rates and in a less complicated manner than previously. They may not be perfect, but it is surely preferable to have consumers more involved in their planning earlier on. The wake-up packs aren’t a panacea; there is still capacity to improve the consumer experience when starting to plan for retirement. Writing on his website, Jonathan Watts-Lay (Director, WEALTH at Work) states that there needs to be more financial education for individuals when they are younger, and more guidance and regulated financial advice readily available in general, in order for consumers not only to make well informed decision about their pensions but about all their finances as well.

With the world going through the current COVID-19 pandemic it is even more important that consumers plan for their retirement earlier. If consumers get involved and use the wake-up pack resource as early as they can they will be better off than if they do not act. So when the alarm clock goes off don’t hit the snooze button for another 5 minutes, it’s time to “wake-up” and plan ahead.

How We Can Help

If you are the operator of a personal pension and would like to understand how the changing rules affect your business please reach out to contact us at RiskSave by pressing the button below.