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The Pensions Regulator

Regulatory guidance

Regulatory guidance

Member retirement options

About our approach
Main methods of providing a member’s retirement income
Scheme specific approach to the open market option
Following good practice
Process
Governance
Support for the member
Other factors influencing the approach
Annex A
Annex B
Annex C

About our approach

If an occupational scheme provides benefits on a defined contribution (DC) basis, trustees must ensure that there is an efficient process in place to convert the member’s money purchase fund into a retirement income.

This is sometimes referred to as the ‘decumulation process’.

The regulator’s research has identified that there is little information generally available for employers and trustees on the practical and operational issues they face in relation to this process.

The aim of this guidance is to encourage trustees and employers to:

  • think carefully about the retirement options offered by their scheme and to follow good practice that is likely to lead to informed decisions being made; and
  • recognise and emphasise to members (and dependants) the advantages of obtaining financial advice from an appropriately authorised adviser.

Indications are that shopping around for an annuity can often produce a significantly better benefit. In general, the decision to purchase an annuity is irreversible. It is important, therefore, that an informed choice is made.

Open market option

As an alternative to the scheme’s process, the member (or dependant) has a right to take the proceeds of the fund to buy an annuity at a current market rate from an insurance company of their choice (the 'open market option').

Different schemes will offer different levels of support to members (or dependants) in choosing their benefits, whether or not the open market option is chosen.

Our Trustee toolkit includes information on the open market option in a section specifically relevant to DC schemes.

Good practice guidance

The Pensions Regulator is committed to providing good practice guidance that will result in improvements to the running of schemes with a DC element.

We recognise that there are many well-run schemes and our approach is to share examples of good practice that trustees and employers can draw upon and, where appropriate, to signpost existing guidance and tools to avoid overlap or information overload.

We've developed this guidance with industry and other government bodies. It's linked to existing information, such as the scope guidance for the regulator’s Trustee toolkit, and it complements initiatives being taken by other bodies in relation to the decumulation process. This includes work being carried out as a result of the Review of the Open Market Option (OMO) led by the Treasury and the Department for Work and Pensions (DWP) in 2007, in which the regulator participated.

Throughout this guidance we refer to members (or dependants) to mean those people who are shortly going to benefit from a pension scheme. These include members, deferred members and the spouses or partners of members who have died before receiving their pensions.

This guidance does not focus on communications with members in the period leading up to retirement – we'll be producing guidance on this in due course.  Members with a good level of financial awareness will plan for their retirement well before they come to consider annuity options.

This guidance does not propose any new requirements over and above those that already exist.

Useful websites

Trustees may wish to consider making these online resources available to scheme members who are approaching retirement:

And for those interested in a more detailed analysis of the relevant issues, we've put together a list of sources (Annex C).