FOR ADVISERS ONLY
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Non-advised customers must be offered investment pathways when they move pension savings into drawdown or transfer funds already in drawdown into a new drawdown arrangement. The main exception to this is when a provider is following an existing instruction to move a customer’s pension savings into drawdown on a regular basis.
Providers must offer these customers the choice of using investment pathways, self-selecting investments or remaining invested in their current investments (where applicable) for their drawdown funds.
Customers choosing investment pathways, or who are unsure what to do, must be shown the following objectives and asked to pick the option that most closely corresponds to their intentions:
Once they have chosen an option, the provider must offer them a pathway investment solution that corresponds to it. This takes the investment decision making away from the customer. They must be reminded of their chosen investment pathway in their yearly statement.
Where a customer has been invested in the same investment pathway for 5 years (or a multiple of 5 years), they should be reminded of the number of years they have been invested in it and that they should review their investment pathway choice.
Providers also have a duty of care to bring it to the customer’s attention where they make a request that is incompatible with the investment pathway chosen. For example, a customer wants to start taking income withdrawals but they have said that they don’t intend to touch their money in the next 5 years.
Advisers must consider available pathway investment solutions when assessing suitability for clients investing their drawdown funds.
Non-advised customers entering drawdown or transferring in assets from another fund in drawdown must be given a warning about the potential risks of cash investment, including the effects of inflation, if they are investing more than half of their drawdown funds in cash or cash-like assets. Customers investing more than half their drawdown funds in an investment pathway solution are exempt from this.
Once a customer has been given a cash warning, they must be given future cash warnings at least yearly while they remain so invested and non-advised.
Providers have 6 months from 1 August 2020 to assess which of their existing non-advised drawdown customers at that date need to be given a cash warning and to provide them with one.
All advised and non-advised customers in drawdown or who have taken an UFPLS payment must be provided with information an all costs and charges, including transaction costs and advice costs, they have paid on their pension pot in the yearly statement. The information must be totalled and provided in cash terms.
Customers should know how much they have paid in all costs and charges on their pension plan, but there is a danger they focus on the amount paid as a measure of value for money. Value for money is more complex and includes governance and communications.
For an overview of all the changes, read our article Retirement Outcomes Review - Part 1 of 2.
Proposition Strategy & Insight Manager
Robin has worked for Royal London for over 30 years with experience in marketing, research, technical support and product development. He currently specialises in the savings and at retirement markets.