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Defined contribution schemes

It sets out what the regulator considers trustees should do to meet those standards.

This DC regulatory guidance should be read by trustees of occupational DC trust-based schemes in conjunction with Code of practice 13: Governance and administration of occupational defined contribution trust-based pension schemes (the DC code). This DC regulatory guidance provides information, education and assistance to trustees on good practice standards of governance and behaviours which relate to delivering good member outcomes.

The DC code and this DC regulatory guidance address the DC quality features that we expect to be present in all occupational DC trust-based schemes that provide money purchase benefits. The DC code focuses on quality features that are related to the requirements of pensions legislation and this DC regulatory guidance covers those features that reflect our view of good practice.

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To whom is this DC regulatory guidance directed?

  1. This DC regulatory guidance applies to trustees of all occupational DC trust-based pension schemes with two or more members (whether active, deferred or pensioner) which offer the following types of benefit:
    • money purchase benefits, including additional voluntary contributions (AVCs) under occupational defined benefit (DB) trust-based pension schemes or sections, and the DC element of hybrid schemes
    • money purchase benefits with a DB underpin: we would normally expect these benefits to be treated as money purchase benefits throughout their lifetime but with the relevant DB legislation and supporting codes of practice and guidance also applied to the underpin (as trustees must ensure that appropriate funding is in place for the underpin).
  2. This DC regulatory guidance does not apply to:
    • schemes providing DB benefits only or to DB benefits in hybrid schemes
    • work-based personal pensions, stakeholder schemes or other contract-based schemes.

Terms used in this DC regulatory guidance

  1. For the purpose of this DC regulatory guidance, reference to ‘trustees’ includes trustee directors of a corporate trustee.

Trustee toolkit

  1. Trustees should also refer to our Trustee toolkit online learning resource.

How to use this guidance

  1. This DC regulatory guidance is structured as a reference document to be used by trustees to inform their actions in core areas of scheme governance.
  2. While trustees should be familiar with this DC regulatory guidance as a whole, we suggest they work through each section systematically. For example, trustees could prioritise sections of this guidance and work through the detail on a modular basis.


  1. Trustees should read this section alongside the Investment section of the DC code which provides practical guidance on areas including the default strategy and other investment options.

Communicating with members about investment choices

DC quality feature

In a quality scheme, trustees will:

  • ensure that members are regularly made aware of their current investment strategy and what this means for them.
  1. Trustees should provide each member with information about the investment strategy of each fund that the member is invested in. This will enable the member to review the ongoing suitability of fund(s) selected. This includes providing up-to-date information on the investment objectives, fund performance, costs and charges of the funds and whether lifestyling applies.
  2. To help members review and understand the nature of the funds they are invested in, trustees should ensure the names of the funds are clear and the risk profile of the funds is described to make it easy for members to understand. This is important because members’ own circumstances may change, for example their attitude to risk may alter or they may change their expected retirement date. Similarly, the nature and performance of the fund(s) they are invested in may change, and the range of investment options may alter, which may mean that the member considers that another investment option is more appropriate.
  3. It is not the trustees’ role to give financial advice to members, but to ensure that quality information is provided to those members who want to make investment decisions. However, trustees may want to work with employers to facilitate access to financial advice for members. They should recommend that members consider taking financial advice when making investment decisions. Where the scheme provides access to a financial adviser, trustees should ensure it is made clear to the member who will pay for the service.
  4. Communications broadly fall into two main types: standard communications and scheme events.

Standard communications

  1. Trustees should ensure that standard communications (for example the joining pack, annual benefit statement and pre-retirement communications) contain relevant messages about investments. What is relevant may vary in different communications, for example pre-retirement communications could include information about the risks of remaining in equity-based funds closer to retirement. Where the scheme provides options relating to investment flexibility, such as the ability to switch the member pot or redirect future contributions, trustees may wish to periodically remind members of these options and the availability of alternative investment funds.
  2. Trustees should ensure that communications make it clear to members that they may incur a loss by being out of the market when switching funds. The risk profile and the costs and charges of the funds should also be presented clearly in the information provided in an understandable format. See the Governance section which addresses transparency of costs and charges.

Scheme events

  1. Where there is a significant change (for example to a fund’s investment objectives or costs and charges structure, the range of investment options or the profile of the default strategy), trustees should provide information to members that clearly explains the changes, any implications for members and any action that they may need to take. Members should be given adequate time to consider the changes and to take action if appropriate.

Additional information

  1. If additional information not covered in the above two categories is available to members, the trustees should ensure that it is easily accessible. Trustees will want to make sure all information is clearly signposted to members. In addition, trustees should consider whether they can provide access to other guidance, tools, online resources, mobile phone applications and other facilities to help members match their fund choice to their own circumstances, including their investment objectives and attitude to risk. Free sources of information which trustees may wish to refer members include:


  1. This section covers:
    • Value for money
    • Transparency of costs and charges for members
    • Transparency of costs and charges for employers
    • Contribution levels
  2. Trustees should read this section alongside the Governance section of the DC code which provides practical guidance on areas including conflicts of interest and relationships with advisers and service providers.

Value for money

DC quality feature

In a quality scheme, trustees will:

  • ensure that all members receive value for money.

What is value for money?

  1. A scheme offers value for money (VFM) where the costs and charges deducted from members’ pots or contributions (the costs of membership) provide good value in relation to the benefits and services provided (the benefits of membership), when compared to other options available in the market. It does not necessarily mean low cost, provided higher costs can be justified by improved benefits.
  2. There is no common definition of what constitutes VFM because employers, trustees and scheme members will place different values on the components within a scheme. Trustees will therefore need to exercise their judgement in undertaking a VFM evaluation exercise. As part of the assessment they should seek to understand what scheme members place the most value in when determining the overall value of their scheme and its individual components.
  3. As investment returns net of charges have such a major impact on member outcomes, trustees should pay particular attention in any VFM assessment to the investment return delivered to members.
  4. In many cases a decision to change the scheme, or elements within it, rests with the employer but trustees should nonetheless ensure that the scheme continues to offer the optimum VFM as it should have when the employer selected it. Trustees should therefore act as demanding consumers.

Assessing value for money

  1. Trustees should keep VFM in mind on an ongoing basis, including it as an item on the scheme’s risk register. Separately, they should carry out a periodic strategic review, for example every three years, following the steps outlined below. There is continuing development in the range of services and benefits offered by schemes, coupled with downward pressure on costs, reflecting technological improvements and market competition. Trustees should make sure that, to the extent that their powers permit them to do so, the scheme continues to be fit for purpose for members and competitive in relation to other options available in the market.
  2. Trustees could schedule the strategic review to dovetail with wider reviews being carried out by the employer, such as a review of the overall employee benefits programme. Trustees should take a proportionate and cost-effective approach in carrying out strategic reviews by using information which is included in ongoing reports from their service providers and publicly available information.
  3. Trustees should document the outcome of any VFM assessment as evidence of their activity in this area, noting in particular any action that they have recommended or taken. Trustees may only need to take action for one aspect of the scheme, for example where a charge for deferred members is identified as being disproportionate or the administration service or adviser’s service is of poor quality.

Model process for VFM review

  1. Step 1: Collect information – on the total benefits of scheme membership and the total costs of scheme membership. This is likely to include the following.

Total benefits of membership

  • Investment performance – the net returns delivered to members, particularly in the default fund(s) should be assessed in the context of the investment objectives.
  • Design of the default strategy – its suitability for members and its approach to derisking.
  • Financial advice – the provision of support and information to the member on pension saving, such as online financial planning tools and a telephone helpline.
  • Support at retirement – the provision of independent financial advice or an annuity broking service.
  • Scheme administration – the type and quality of service received by the member, such as online services, and error and complaint handling.
  • Scheme governance and advice – the quality of external advice provided to trustees.
  • Scheme-specific factors – that may add value to members.

Total costs of membership

  • All member-borne costs and charges (associated with each element of the scheme) – for example, ask the service providers and adviser to complete a template summary in accordance with Pension charges made clear (the joint industry code).
  • Portfolio transaction costs – these are not generally disclosed within, for example, the annual management charge (AMC) or total expense ratio (TER). However ask for an estimate of these costs and their impact on members’ pots. For information on what is normally included in the AMC, TER and portfolio turnover rate, go to our guidance on costs and charges.
  1. Step 2: Determine criteria for assessing value for money – the investment performance delivered to members in the context of the investment objectives is likely to be critical. Understanding what members value most highly will help trustees and/or the employer to exercise their judgement. For example, they will also need to consider the profile of the membership, pot size, membership status and level of engagement.
  2. Step 3: Compare the criteria with other schemes – seek information on other similar schemes, such as their charging structures, investment performance and service provision. Downward pressure on prices is a common feature of competitive markets. Information on scheme charges and what is provided for this charge are readily available on the internet. In relation to governance, communications and charges, the criteria for the National Association of Pension Funds Pensions Quality Mark may be a useful reference tool for trustees.
  3. Step 4: Evaluate and act – evaluate the total benefits of membership and the total costs of membership of the scheme in relation to what the members’ value most, and the benefits and costs of other similar schemes. Where trustees and/or employers conclude that a scheme or service provider is not delivering VFM, they should take action.

Improving value for money

  1. Trustees can often address VFM issues such as poor quality administration or poor investment returns by raising issues and concerns directly with advisers and service providers. Where they have concerns about VFM that are not within their scope to resolve, for example where the contract for services is with the employer, they should draw these concerns to the employer’s attention. Trustees should make clear the potential impact on members, as well the employer who may be incurring unnecessary additional costs.
  2. If, after reviewing the benefits and costs of membership and comparing these to other options available in the market, trustees consider that the scheme is unlikely to deliver VFM to members, trustees should consider action in relation to the scheme overall, and discuss this with the employer.
  3. As a consequence of these discussions, the trustees and/or employer may determine that the interests of members (both active and deferred) may be better served by:
    • requiring improved service levels
    • negotiating lower costs
    • removing unused services
    • changing provider.
  4. Where concerns about VFM relate to the provision of services and their quality, trustees should challenge their providers and advisers as negotiations may result in better VFM for members. Providers may be prepared to alter their offering in order to retain the business of the scheme.
  5. In some cases it may be apparent that members may be better served in a larger scheme that has the potential to deliver better member outcomes through economies of scale, professional governance and consolidated resources. This may in turn require that the existing scheme is wound up and members’ assets transferred to a more competitive arrangement. This can be a valid conclusion of a VFM evaluation provided it can be justified by the evidence.

Transparency of costs and charges for members

DC quality feature

In a quality scheme, trustees will:

  • ensure that all costs and charges borne by members are clearly disclosed to members.
  1. Costs and charges can have a significant impact on members’ pots. Trustees should clearly present costs and charges deducted from members’ pots to members throughout their membership. They should ensure this information is readily available for those who want it (this could include making information about costs and charges available online).
  2. Trustees should disclose information about all costs and charges to members:
    • on joining
    • annually thereafter, for example in members’ annual benefit statements
    • before members carry out transactions that incur costs, for example switching funds
    • on request from the member
    • on leaving the scheme/employer – in particular, increased charges for deferred members must be clearly flagged
    • before charges or funds change.
  3. Ensure the information is in a format which:
    • sets out all costs and charges that could affect the member’s pot including:
      • costs and charges incurred in the previous year (for example, deductions from contributions and transaction costs) and, if appropriate, those which trustees expect to apply in the coming year
      • costs that only apply in certain situations, for example when switching funds
    • encourages member engagement and does not overwhelm members with extensive technical information
    • is clear, fair and balanced to enable members to make a value for money judgement on costs and charges
    • explains costs and charges, especially when they are above average
    • ensures that any consultancy charge[1], adviser charge or commission, which is deducted from members’ pots or contributions to cover the cost of advice, is clearly disclosed to members when the charge is introduced or before any change to the charge.
  4. Trustees may wish to consider whether to provide a single pounds and pence figure for total costs and charges deducted, with access to a detailed breakdown for members who wish to see how this figure is made up.
  5. Where it is too expensive or impracticable to quantify certain costs and charges, trustees should include a clear note that they exist, so that they are not hidden from members.

Transparency of costs and charges for employers

DC quality feature

In a quality scheme, trustees will:

  • ensure that all costs and charges borne by members are transparent and communicated clearly at point of selection to the employer to enable value for money comparisons to be made and to assess the fairness to members of the costs and charges.
  1. If an employer is considering whether to offer membership of an existing occupational DC trust-based pension scheme to their employees, the trustees of that scheme should ensure that they provide clear and accurate information about costs and charges to the employer.
  2. This may require trustees to liaise with the relevant adviser or provider to ensure that this information is disclosed to the employer. This will enable the employer to compare schemes, assess the value for money that the scheme offers to their workforce and select the arrangement that best meets the needs of their employees.
  3. Pension charges made clear (the joint industry code) sets out how to disclose information to employers about the costs and charges of DC schemes. Trustees should liaise with advisers and providers to ensure that the information set out in the joint industry code is provided to employers.

Contribution levels

DC quality features

In a quality scheme, trustees will:

  • ensure that schemes offer flexible contribution structures that give members the option to pay more
  • ensure that members are regularly informed that their level of contributions is a key factor in determining the overall size of their pension fund.
  1. Paying enough pension contributions is one of the key elements in helping members receive an adequate income from their DC pot. Many members may need to make contributions above the minimum scheme qualifying threshold in order to help meet their retirement income expectations. Trustees should make sure that they clearly communicate this to members.
  2. Generally, the employer decides the default contribution levels for members. Where the scheme is an automatic enrolment scheme, contributions must meet the minimum scheme qualifying threshold. Many employers offer members the opportunity to vary contribution levels.
  3. Trustees should ensure that any contribution flexibility offered by the employer can be accommodated by the scheme rules and is supported by effective processes and communications to members. Trustees should encourage members to obtain financial advice and, where appropriate, take advantage of arrangements that result in higher contribution levels.

Enable members to vary their contributions

  1. Whilst discretionary, contribution flexibility options which employers may make available to members include:
    • Additional contributions: the option to make either additional monthly contributions or lump sum payments.
    • Matched funding: where the employer offers to make additional contributions when members increase their monthly contributions above the default level. These additional employer contributions may be on a like-for-like basis or may use a different ratio, for example the employer pays an extra £2 for every additional £1 paid by the member, subject to a cap.
    • Salary sacrifice: where the member can elect to give up part of their salary in exchange for the employer paying increased pension contributions.
    • Auto-escalation: where members commit to increase their contribution automatically, for example annually.
    • Reduction: the ability for members to reduce or suspend contributions if they cannot afford them.
  2. Where the employer does offer contribution structures that may be beneficial to members, trustees (and the employer) should ensure that this is clearly communicated to members. The trustees should review how many members take advantage of beneficial contribution structures offered and assess whether they need to take further action to determine why take up may be low.

Communicate effectively with members

  1. Trustees should ensure that standard communications (for example joining packs, annual benefit statements and pre-retirement communications) clearly outline to members:
    • any options for flexible contributions, as well as providing a point of contact to enable members to make the necessary changes
    • that the levels of contributions they make during the scheme membership are a key factor in determining their eventual pension income
    • the potential effects of increasing contributions as early as possible in order to benefit from compound growth potential: trustees may wish to provide an example illustration for members to demonstrate the potential benefits
    • that it is important for members to regularly review the level of their contributions to make sure they are on track to meet their retirement income expectations
    • whether financial advice is available to members to help them make decisions
    • that financial planning tools and free sources of information (such as the Money Advisory Service and the Pensions Advisory Service) may help members to decide what is an appropriate level of contributions for their individual circumstances.
  2. Trustees may wish to include information about how members can obtain a state pension statement to assist them in their retirement planning. They may also wish to discuss with the employer providing members with a Combined Pension Statement. This lets trustees combine information about members’ state pension and work-based pension in a single statement. For more information, go to the GOV.UK guide on Combined Pension Statements.
  3. Trustees should consider with employers whether other event-driven communications may be worthwhile, for example when employees receive pay rises, bonuses or promotions, their share option schemes mature or when they take redundancy.

Changes to contribution levels

  1. Trustees should work with payroll teams and administrators to ensure that systems and processes can effectively support the flexible contribution arrangements offered by the employer.
  2. Trustees should monitor how well the process for amending contribution rates is working. They should review periodically the levels of contributions being paid to the scheme, monitoring and reviewing any significant fluctuations in payments received and work with the employer to address any issues identified.

Footnotes for this section

  • [1] The Department for Work and Pensions have announced that consultancy charging is banned for automatic enrolment schemes but it may be present on some schemes set up prior to the ban and also apply on schemes not being used for automatic enrolment.


  1. Trustees should read this section alongside the Administration section of the DC code which provides information on areas including scheme record-keeping, data protection and processing core financial scheme transactions.

Establishing a robust retirement process

DC quality features

In a quality scheme, trustees will:

  • ensure that a process is provided which helps members to optimise their income at retirement
  • clearly communicate to members the options available at retirement in a way which supports them in choosing the option most appropriate to their circumstances.

What the retirement process should achieve

  1. All schemes should have a documented retirement process which sets out the key activities, timeframes and who is responsible for them.
  2. Trustees should ensure that the design and governance of the retirement process and communications to members support a good member outcome. A member is more likely to achieve a good outcome when they consider the options and products available from the scheme and the open market and the member selects the option or product(s), often an annuity, best matched to their individual circumstances. Prior to selecting a retirement income product, all members should experience an open market ‘shopping around’ process. To support this, trustees must make members aware of the open market option (OMO)[2].
  3. The decisions that members will need to take in order to optimise income at retirement begin a number of years before retirement; certainly no later than the start of lifestyling or de-risking of target maturity funds. Most of these decisions are irreversible and can be complex, and many members will come to the retirement process with low levels of engagement with pension savings.
  4. Changing working patterns, increases in longevity, low annuity rates and the availability of a greater range of retirement products mean that simply selecting a lifetime annuity at the state retirement age is by no means the only or best option. The Government is also consulting on allowing members to draw their whole DC pot as a lump sum from age 55 with effect from 6 April 2015. Trustees should ensure that members are made aware of the full range of options available to them, including commutation for small pots and members deferring their pension.
  5. Trustee and employer support, and effective member communications, are extremely important in ensuring that members have all the information they need to make the best decision based on their circumstances. Trustees should therefore consider supporting members by providing access to independent financial advice or an annuity broking service. They should work with the employer and provider where appropriate.
  6. Trustees should ensure the retirement process meets the needs of different categories of members, for example:
    • deferred and active members
    • members with small and large pots
    • members with multiple pots
    • members choosing to retire at different ages, including those retiring in difficult circumstances, such as ill health or financial hardship.

Legal requirements

  1. Trustees of occupational DC trust-based pension schemes must give members the option of selecting an annuity from an insurance company of the member’s choice and different from the insurer with whom the member has saved[3]. This is the open market option.
  2. Trustees must inform a member about the OMO at least four months before their expected retirement date and supply them with the following information in respect of the OMO and annuities generally[4]:
    • a statement that the member is able to select an annuity
    • a statement that the member is able to select the annuity provider (where that applies under the scheme rules)
    • a statement that different annuities have different features and different rates of payment and giving general information about the different types of annuity that are available, including:
      • level annuities and increasing annuities
      • single and joint life annuities
      • annuities with or without guarantee periods
    • a statement that the member should consider taking advice on the most suitable annuity for their needs
    • either:
      • an explanation of the characteristic features of the annuities referred to in the third bullet
      • a copy of guidance giving that explanation that has been prepared by the regulator – see our pension guides.
  3. Trustees must keep records of information (including member data) relating to[5]:
    • the date each member joined the scheme
    • details of all the contributions received
    • all payments to and from the scheme
    • details of transfers of members’ benefits to and from the scheme.
  4. Trustees must put in place adequate internal controls to manage the administration of their scheme[6]. This includes maintaining accurate and up-to-date member data. In order to meet these legal obligations it will be important for trustees to ensure the integrity of the scheme’s data.

The importance of good quality data

  1. Trustees need to send the right pre-retirement information at the right time to the right place. To do this they need accurate data about members including dates of birth, expected retirement dates and addresses. These are ‘common data’ items which should already be present. All schemes should hold the common data items listed in our record-keeping guidance.
  2. Communications throughout the period of scheme membership should stress how important it is that members remain in contact with the scheme. Additional contact information such as telephone numbers and email addresses can be useful at retirement so as to avoid potential postal delays; an annuity purchase is often a time-sensitive purchase.

The design of the retirement process

  1. The scheme’s rules may define some aspects of the retirement process. If the rules constrain trustees from offering the process that they wish to provide for members, trustees should consider whether it is appropriate to raise the matter with the party with whom the power to amend the rules rests.
  2. Effective communication with members in the years leading up to retirement is critical. The Association of British Insurers Code of conduct on retirement choices (the ABI code) is a mandatory code which ABI members are required to follow. The ABI code sets a baseline standard for the retirement communications issued by ABI member organisations to pension scheme members. As a starting point, this guidance incorporates the key elements of the ABI code.
  3. Where the scheme insurer provides retirement literature for trustees to issue, trustees should obtain written assurance from their insurer that it is compliant with the ABI code. Trustees should satisfy themselves that the retirement process and literature from an insurer meets the specific OMO legal requirements set out above and is likely to result in members shopping around the market to obtain the products and options best matched to their individual circumstances. In practice many schemes already go much further than the ABI code in the support that they provide to members[7] and we encourage all trustees to do this.
  4. Trustees should ensure that members evaluate annuity options from providers other than the provider with whom they have saved. This should include assessing the costs.

Enabling member retirement decisions

retirement communications timeline

  1. Trustees should give members the relevant information at the right time to support the decisions they need to make at retirement. This is covered in more detail in Table 1.

Table 1: When to provide information to members

Time before retirement  Trustee actions 

Throughout period of scheme membership

Start education and warm-up process to enable members to take effective decisions at retirement. For example, include messages in annual benefit statements with links to tools, resources and information. Where a scheme offers lifestyling include a statement in the information provided to members on joining the scheme explaining lifestyling[8], when it is likely to be adopted, and its advantages and disadvantages[9]. Also periodically remind members how lifestyling works and the importance of advising the scheme of any change in their expected retirement date.

Between five and 15 years before the members’ retirement date[10]

Explain lifestyling and its advantages and disadvantages and when it is likely to be adopted or has been adopted. This allows members to consider whether this is still appropriate to their circumstances and consistent with their planned retirement date.


Between two and five years before planned retirement


Start communicating with members about their retirement options; encourage them to begin considering these and introduce them to the decisions that they need to make and the importance of shopping around. Explain to members who are in volatile or illiquid funds that they have the option to switch into funds that are less volatile or illiquid as they approach retirement, and the potential impact of such a switch, where the option to switch is available.


At least four months before retirement[11]


Send a ‘wake-up’ letter containing the required information about the OMO to members including information about the retirement process and annuities. The ABI code includes a template letter that is a good starting point for a helpful covering letter, and can be used as a sense check for reviewing existing scheme communications. Trustees must include prescribed information, for example by including the Money Advice Service booklet Your pension: it’s time to choose.


At least six weeks before retirement


Send a follow-up letter giving instructions on how to draw benefits and the different options available and to give a strong message that members need to make a decision in a timely manner.

  1. Due to the complexity of the decisions that members need to take during the retirement process, trustees should emphasise in their retirement communications with the member the importance of taking financial advice.

Supporting members’ retirement decisions

  1. There are two broad types of support that trustees may wish to adopt as the member’s retirement date approaches:
    • Facilitated process. In this process the trustees and/or the employer facilitate member decision making by appointing an adviser or annuity broker. A financial adviser can provide regulated financial advice and recommend a specific product. An annuity broker can assist on an annuity purchase, via ‘execution-only’ or ‘guidance-only’. Where possible trustees should provide a facilitated process, liaising with the employer or provider as necessary. For more information, see Appendix A.
    • Information process. In this process, members make decisions for themselves. They are supported in this decision making process by information from the trustees and others involved with administration of the scheme.
  2. Where trustees do not provide a facilitated process and only provide information about a specific provider to the member, trustees should review the competitiveness of the provider, for example via the sample annuity rates published periodically by the ABI. This situation also increases the importance of trustees encouraging members to consider seeking independent advice and support.
  3. It is not the trustees’ or employer’s role to give advice to members about how to use their pension pot to deliver a retirement income. By appointing an annuity broker or financial adviser the trustees and employer do not take on liability for the products offered by these intermediaries.
  4. In their retirement-related communications, trustees may wish to refer members to the following free sources of information:

Model retirement process

  1. The process described below is a model retirement process which trustees should adopt.
  2. The process is broken down into five stages:
    • stages 1 to 3: member communications following the timeline in Table 1 above
    • stage 4: setting up the retirement income product
    • stage 5: reviewing the retirement process.
  3. Stage 1: Ensure the member understands retirement – trustees should provide general information about retirement options in ongoing scheme communications, for example when providing annual benefit statements or newsletters, to increase awareness among all members well in advance of their retirement date.
  4. In addition, starting at least two years before retirement, trustees should communicate with members on an individual basis to ensure that the member is well prepared for the decisions that they need to take regarding their retirement benefits and the timetable for these decisions. In particular, trustees should:
    • encourage the member to consider their own circumstances and their retirement income options: for example, if a member has other pension pots, they may want to consider merging these
    • provide details of any pre-retirement training sessions offered by the scheme or employer for groups of individuals approaching retirement
    • explain clearly the timescale of the retirement process, including making members aware that they may be able to change their retirement date
    • explain the decisions the member needs to make at each point of the retirement process.
  5. Stage 2: Ensure the member understands the different ways to take retirement income – trustees should not assume that members will simply annuitise at their retirement date as this may not necessarily deliver the best outcome. Trustees must make the OMO clear to members – the right to shop around should be prominent in all retirement-related member communications.
  6. Trustees should not include an application form with the scheme’s wake-up and follow-up letters. It should only be sent when contact has been made between the member and the scheme or adviser/broker appointed to support members at retirement – see Appendix B.
  7. Trustees should make members aware of the range of ways in which they can receive their retirement income including, for example:
    • lump sums:
      • tax-free lump sums
      • trivial commutation (broadly this means taking a lump sum where a member’s total funds across all their pension schemes are worth £30,000 or less)
      • taking small pension pots as cash (broadly this applies to pension pots of £10,000 or less)
    • lifetime annuities:
      • any guaranteed annuity rates offered by the scheme
      • single and joint life lifetime annuities
      • level and increasing/index-linked lifetime annuities
      • enhanced and impaired life lifetime annuities[12]
      • annuities with and without guarantee periods
    • products that keep all or part of members’ money invested:
      • deferring drawing benefits
      • investment-linked lifetime annuities
      • phased retirement
      • capped and flexible drawdown (income withdrawal arrangements)
      • fixed term annuities – normally up to five years
      • hybrid products – which may involve either income or capital guarantees.
  8. Trustees should consider providing access to online resources, such as annuity calculation tools and information, to help members select a suitable retirement income product. This will help members to understand the likely costs, advantages and disadvantages of the different types of retirement income products available.
  9. Stage 3: Ensure the member understands how to buy products – trustees should ensure that the scheme provides support to members who decide to buy an annuity. In particular, the scheme should assist with obtaining OMO rates, as this is likely to enable a member to obtain the best priced product to meet their needs. Communications should make clear that annuities provided on the open market by firms regulated by the Financial Conduct Authority (FCA) are protected by the Financial Services Compensation Scheme. Where an annuity is required, the existing provider may not necessarily offer the most competitive rates and this should be made clear to members.
  10. Trustees should consider how best to educate members who could potentially be eligible for impaired life and enhanced annuities about these types of annuities.
  11. Trustees should also provide information about any specific scheme rules that may affect the member’s options, for example guaranteed annuity rates. In hybrid schemes, or DB schemes with DC AVCs, where there may be the option for the DC pot to be used to provide either tax-free cash or to purchase an annuity within the scheme, trustees should still communicate to members the full range of options, including the OMO.
  12. In the months leading up to the expected retirement date, information about how to buy products will become increasingly important. Trustees must contact members via a wake-up letter at least four months[13] before they reach their intended retirement date. Trustees should also send a follow-up letter at least six weeks before retirement, explaining how members can draw benefits and setting out clearly the timescales and what is expected of the member.
  13. Stage 4: Implement members’ decisions – once the member has made their decision, trustees should have processes to ensure that administrators and providers facilitate the smooth and timely purchase of annuities, including the release of funds to the new provider.
  14. Retirement processes can be administratively complex. If a member has decided to purchase an annuity and chosen to exercise the OMO, the rates are generally only held for very short periods so any delays can lead to losses for members. Trustees should make members aware of the importance of acting promptly when they are asked to provide information.
  15. Depending on the scheme rules, annuities can be set up in the name of the member or the trustees. In the latter case the annuitant remains as a scheme member and the trustees retain responsibility for ensuring that the payments are made in a timely way. If the annuity is set up in the name of the member, the funds are moved out of the trust and scheme membership ends.
  16. Where trustees do not receive a response from members to their communications, the retirement process should clarify the follow-up action that trustees will take at each stage of the process. Trustees should take steps to verify the address they have been using. They should issue at least one further reminder to the member after they have reached their normal retirement age: this should confirm what happens if they take no action, taking into account any requirements set out in the scheme rules. Trustees may wish to consider periodic reminders after the member’s normal retirement age has passed.
  17. Stage 5: Review the retirement process and monitor outcomes – trustees should include risks related to retirement and members’ decumulation options in their scheme’s risk register (see the risk management section in the DC code) and manage these effectively.
  18. Trustees should review the design and operation of the retirement process and the member communications periodically, for example at least every three years. This should take account of regulatory changes and current good practice. Trustees of larger schemes, or those with more members retiring, may wish to carry out reviews more frequently.
  19. For members who are still active members at retirement, trustees should ensure that the retirement processes of the scheme and the employer dovetail, so that members can achieve a seamless transition from work to retirement.
  20. Trustees should ensure that, in newly established schemes, the retirement process is adequately developed so that it works efficiently when the first members come to retire.
  21. To monitor outcomes, trustees should test their retirement processes on a regular basis using a number of measures:
    • Taking into account members’ experiences when assessing the quality of their retirement process. This might include considering:
      • performance figures within any service level agreements for processing member retirement choices
      • individual feedback and any complaints from members
      • recommendations from administrators and advisers.
    • Monitoring and considering the amount of time the retirement process has taken for various members, for example the time between the member providing their instruction and the date that benefits are paid.
    • Reviewing the actual retirement choices and outcomes that all members (including deferred members) have achieved over a period. Trustees should consider the value that has been achieved for members and, where necessary, change their processes. For example, it may become evident that impaired life annuities, the OMO or the availability of other options in addition to annuities need more publicity to ensure members are aware of their options and rights.
    • Where trustees do not provide a facilitated process and provide information about a specific provider to the member, trustees should review the competitiveness of the provider, for example via the sample annuity rates published by the ABI.
    • Reviewing the performance of providers, for example the administrator, adviser or annuity broker and taking action where appropriate.

Footnotes for this section

  • [2] Regulation 19 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
  • [3] Paragraph 3(1)(b) of schedule 28 of the Finance Act 2004.
  • [4] Regulation 19 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
  • [5] Section 49 of the Pensions Act 1995 and regulation 12 of the Occupational Pension Schemes (Scheme Administration) Regulations 1996.
  • [6] Section 249A of the Pension Act 2004.
  • [7] 52% of occupational DC schemes appoint an annuity broker to search the market for a competitive annuity to offer (source: Occupational pension scheme governance – a report on the 2013 (seventh) scheme governance survey, The Pensions Regulator.
  • [8] ‘Lifestyling’ means an investment strategy that aims progressively to reduce the potential for significant variation caused by market conditions in the value of the member’s rights.
  • [9] Regulation 6 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
  • [10] Regulation 18 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
  • [11] Regulation 19 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
  • [12] Throughout this guidance we will refer to both these types of annuities as enhanced annuities. Impaired life annuities refer to medical conditions that may result in reduced life expectancy. Enhanced annuities refer to aspects of lifestyle such as smoking or being overweight.
  • [13] Regulation 19 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013.

Member communications

  1. Member communications covers a number of areas. This section focuses on the first DC quality feature listed below. The remaining features are covered in detail in other sections.

DC quality features

In a quality scheme, trustees will:

  • ensure that scheme communication is accurate, clear, understandable and engaging and it addresses the needs of members from joining to retirement
  • ensure that members are made aware of their current investment strategy and what this means for them (see Investment section)
  • ensure that members are regularly informed that their level of contributions is a key factor in determining the overall size of their pension fund (see Governance section)
  • ensure that all costs and charges borne by members are clearly disclosed to members (see Governance section)
  • clearly communicate to members the options available at retirement in a way which supports them in choosing the option most appropriate to their circumstances (see Administration section).
  1. Members’ outcomes are more likely to be improved when members engage on key issues such as how much to contribute, what fund(s) to invest in and how to draw their retirement benefits. Trustees should therefore design and deliver scheme communications to help members to understand their options and, where appropriate, to support them in taking action.
  2. If the scheme administrator issues scheme communications on behalf of the trustees, accountability for the communications remains with the trustees. Trustees should ensure communications comply with the relevant legal requirements and be prepared to challenge the scheme’s providers if they have any concerns about the quality of communications. 

Legal requirements

  1. Certain communications issued by trustees to members are subject to legislative requirements which specify the content of the communications and when they must be sent out. The key legislative requirements are outlined below.

Information on joining

  1. Trustees must provide members with basic information about the pension scheme within two months of them joining or within one month if the individual has been automatically enrolled within the pension scheme. Where a scheme offers lifestyling, trustees must explain lifestyling, when it is likely to be adopted and its advantages and disadvantages[14].

Annual information

  1. Trustees must provide most members with a statutory money purchase illustration (SMPI)[15] which illustrates a member-specific projected pension, and an annual benefit statement which provides details of contributions credited (before deductions) to the member in the preceding scheme year. This information has to be provided within 12 months of the end of each scheme year.

Information on request

  1. Trustees must provide members with certain documents on request including:
    • trustees’ annual report including the scheme’s investment report, audited accounts and the auditor’s statement[16]
    • scheme rules or other documents constituting the scheme including names and addresses of participating employers[17]
    • statement of investment principles[18]
    • ad hoc benefit statements and transfer values[19].


  1. Where the scheme offers lifestyling, trustees must provide a statement between five and 15 years before the members’ retirement date that explains lifestyling and its advantages and disadvantages and when it is likely to be adopted (or that it has been adopted)[20].

Open market option

  1. Trustees of occupational DC trust-based pension schemes must give members the option (as an alternative to the scheme’s process) of selecting an annuity from an insurance company of the member’s choice. This is the open market option.
  2. Trustees must inform a member at least four months before the member's expected retirement date about the OMO and specified information in respect of the OMO[21].

Other events

  1. Trustees must provide information to members when other specific events occur. These events include:
    • when a member is divorcing their spouse[22]
    • when a member leaves the scheme[23]
    • following notification of the death of a member (information may be required by other parties)[24]
    • in advance of and when benefits become due[25]
    • when there is any proposal to materially alter the scheme[26]
    • if the scheme winds up[27].

    Practical guidance

    Working with the employer

    1. As employees often look to employers for information, employers can play a major role in delivering successful communications. Trustees should work with the employer on a co-ordinated approach and in some situations they may wish to issue joint communications from the employer and trustees.
    2. Certain changes require the employer to consult formally with the members under the terms of the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006. In these situations, trustees need to be aware of the employer’s communications plan when they issue their own communications.

    Effective communications

    1. The legal requirements for specific communications leave considerable flexibility for trustees in how they communicate with members. Trustees should determine what the most effective approach for communicating with members is. This should take into account issues such as any budgetary constraints and the profile of members.
    2. Effective communications have a clear purpose and provide members with the information they need to make decisions. Trustees should consider what message they want to convey and what actions, if any, they are expecting the members to take.
    3. Trustees may wish to document their approach to communications in a plan which sets out their communication objectives, how they plan to achieve them and who is responsible for the different aspects of communications.
    4. Trustees should ensure communications are accurate, clear, understandable and engaging.

    Accurate communications

    1. When members join the scheme they should receive information about their investment choices, the charges and the flexibility of contributions. If the information is inaccurate, members are likely to make inappropriate decisions. Trustees should therefore take care to ensure that the factual information, including members’ personal data, contained in any member communications is up to date and correct.
    2. There may be a complex process (either manual or using an information technology solution) to incorporate relevant member data into communications and to collate them ready for despatch. Trustees should therefore ensure that there are appropriate controls and checks on this process to reduce the scope for errors occurring.
    3. Trustees should ensure that any information supplied by providers is balanced and presented fairly before they authorise its use. For example, in retirement communications any promotion of the provider’s own annuity needs to be fairly balanced with the availability of the OMO, and when describing funds, the costs, charges and risks as well as the potential benefits should be described. When producing a statutory money purchase illustration (SMPI), trustees should use an accumulation rate appropriate to the member’s investment strategy and market conditions, and consider Financial Reporting Council guidance on providing additional information to accompany the SMPI.

    Clear and understandable communications

    1. In developing their communications, trustees should consider the following:
      • Language. The language should be appropriate for members, avoid jargon and reflect their financial literacy. The Department for Work and Pensions has prepared an automatic enrolment and pensions language guide to assist with this process.
      • Understanding the audience. Trustees should take account of the characteristics of the membership, for example their levels of financial awareness, access to technology and any disabilities or impairments.
      • Schemes with hybrid benefits. These can be complex in design so it is particularly important that trustees ensure that the scheme documentation and communications accurately and coherently explain the scheme design and benefits to members.
    2. Trustees may want to periodically check with a sample of members what they think of the standard communications such as the joining pack and SMPI. Consider, for example, member focus groups, workshops or surveys.
    3. Similarly, if a communication is dealing with a particularly complicated issue, trustees may wish to consider testing it with some members before they issue it to the membership generally. Trustees should also ensure that there is appropriate support in place to deal with queries after major communications such as the issue of annual benefit statements.

    Engaging communications

    1. Ultimately member understanding and their engagement with their savings is each member’s own responsibility. However, trustees should do what they can to attract and hold members’ attention, for example by making it as easy as possible to obtain the information they need and to implement any decisions they take.
    2. To encourage member engagement, trustees should seek to provide the right information at the right time using the right channel.

    The right information

    1. Trustees should consider the following:
      • Many members have low levels of engagement with and understanding of pensions. If they receive too much information, this can decrease its effectiveness. Trustees should keep the presentation simple and to the point. Signpost to sources of more detailed information for those members who want to access it.
      • Communications are more valuable if they provide information that enables members to understand the impact of decisions on their own circumstances. As the main aim of pension saving is to provide a retirement income, trustees should consider the best ways of demonstrating members’ projected income. Some schemes enable members to indicate their desired level of retirement income. Annual benefit statements and online systems show whether the member is on track to reach their target and whether they need to change their contribution to get back on track.
      • Remember the needs of all membership groups and think about whether to tailor communications to specific groups, for example deferred members, younger members or those approaching retirement.
      • If tailored communications cannot be sent, ensure that communications include clear signposting so that members can ignore areas of a communication which do not affect them.

    The right time

    1. Trustees should consider the timing of communications to maximise their effect. For example:
      • send out reminders about contribution levels to coincide with events such as pay increases, payment of bonuses, the end of the tax year and birthdays
      • send out communications so that they arrive on a particular day or date that is likely to increase the number of members who read it.

    The right channel

    1. Effective communication does not have to be elaborate, glossy or costly.
    2. Trustees should use the most appropriate channels of communication and, where possible, they should accommodate members’ preferences. For example:
      • trustees should consider how best to use resources such as a scheme website, email, the company intranet, webinars and podcasts, mobile phone applications and text messages
      • scheme administrators can communicate with members face-to-face or via telephone calls
      • with the agreement of employers, posters in the workplace or roadshows may be useful.


    1. Trustees should decide what their objective is for each member communication, monitor how effective the communication is in achieving that objective and take action if the objective is not achieved. For example, trustees should ensure that feedback immediately after a communication is sent out is monitored in case there has been a significant level of confusion or misunderstanding about its content. In some cases, trustees may need to clarify or correct the previous communication.

    Risk management

    1. Trustees should ensure that member communications quality is an item in the scheme’s risk register. As part of a regular assessment of scheme risk, trustees should review standard scheme communications to members, for example once a year or when legislation changes, to assess the effectiveness of the communications.

    Footnotes for this section

    • [14] Regulation 6 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
    • [15] Regulation 17 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
    • [16] Regulation 12 of SI 2013/2734.
    • [17] Regulation 11 of SI 2013/2734.
    • [18] Regulation 13 of SI 2013/2734.
    • [19] Regulation 14 of SI 2013/2734.
    • [20] Regulation 18 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
    • [21] Regulation 19 of SI 2013/2734.
    • [22] As described in the Pensions on Divorce etc (Provision of Information) Regulations 2000.
    • [23] Regulation 14 of SI 2013/2734.
    • [24] Regulation 21 of SI 2013/2734. See also Part IV of the Pension Schemes Act 1993 and supporting regulations.
    • [25] Regulation 20 of SI 2013/2734.
    • [26] Regulation 8 of SI 2013/2734.
    • [27] Regulations 24 to 25 of SI 2013/2734.

    Appendix A - The facilitated process: appointing an intermediary to support members at retirement

    Why trustees might want to appoint an intermediary

    The decisions that members need to make during the retirement process are complex and members’ level of engagement with pension saving are generally low. Trustees and employers should therefore consider appointing an intermediary rather than simply providing information to members.

    A financial adviser can provide holistic financial planning and regulated financial advice in relation to a member’s overall financial position. An annuity broker will assist on an annuity purchase via ‘execution-only’ (ie the member instructs the broker on the specific product, features and provider they want) or ‘guidance-only’ (where the broker gives information on particular product options and providers based on the personal details provided by the member). Some intermediaries offer more than one of these services (advice, guidance or execution-only) and it should be clear to the member what type of service they are receiving.

    Choosing whether to appoint a financial adviser or an annuity broker

    Members with large pots will generally have more options available to them and may be more likely to benefit from financial advice. Trustees could offer a combination or choice of services to different membership groupings – for example, offer some members access to an adviser and refer some members to an annuity broker (for example, based on pot size).

    Trustees should consider how to maximise member engagement as both advisers and annuity brokers require the member to provide information on their circumstances. For example, if the member gives full details of any medical condition, this may result in a higher annuity rate.

    Trustees should make members aware that they do not need to accept the advice of the intermediary appointed by the scheme; members may use an intermediary of their own choice, or they can make their own decision.

    What to consider when appointing a financial adviser or an annuity broker

    Trustees should ensure that the adviser or broker is authorised and regulated by the Financial Conduct Authority for the services they offer.

    Trustees, in conjunction with the employer/scheme provider where applicable, should base their decision on which adviser or broker to appoint on their coverage, quality, and cost.

    Coverage relates to the number of product providers the adviser or broker is able to access. ‘Whole of market’ coverage gives access to all providers/product ranges, and may deliver the most competitive rates, although intermediaries, including restricted advisers, may be able to negotiate higher rates with particular providers. Where an annuity broker is appointed, trustees should ensure that the member is provided with adequate information on non-annuity options such as trivial commutation and deferral.

    Quality relates to what the broker or adviser is offering and how this is delivered, for example tailoring member communications, or the quality of the telephone-based, IT, online or face-to-face support. Trustees should establish service level agreements with their appointees including the provision of management information to the scheme on member’s decisions, such as the type of products purchased. Trustees should ensure they are satisfied with the professional standard of the firm and the experience of its personnel in the at-retirement market. Trustees should also satisfy themselves that the firms have adequate internal quality assurance arrangements in place regarding the annuities purchased by members, for example whether enhanced or impaired terms were obtained where applicable.

    Cost relates to the payment the adviser or broker will require for the service they provide – this may be calculated as a percentage of the member’s pot or a flat fee. A fee-based arrangement may be less costly than one based on a percentage of the pot, particularly for larger pots. In either case, trustees should establish the level of fee as part of the service level agreement and make clear to the member who is paying for the service.

    In accordance with FCA rules, the adviser must also confirm and agree the costs with the member prior to conducting investment business. In the case of a fee-based service, trustees should establish the basis on which commission is rebated. In the case of a commission-based service, trustees should establish the level of commission, including whether there is a cap. Where applicable, trustees should negotiate to obtain value for money for members. Trustees may decide on a part-fee and part-commission approach, for example where the trustee or employer makes a contribution of say £50 towards the provision of the service and commission is also paid by the annuity provider. Where the member pays for the service, it increases the importance of reminding members how to access free services such as the Money Advice Service and the Pensions Advisory Service.

    How trustees might manage the relationship with a financial adviser or an annuity broker

    Trustees may wish to integrate an adviser or a broker into the scheme’s retirement process. In this case the scheme provides the adviser or broker with basic member information and the broker or adviser then contacts the member and takes them through the process. This is likely to require the member providing additional personal information on, for example, medical conditions, as this may result in a higher annuity rate.

    Appendix B - Setting up annuities

    Unrequested illustrations

    Trustees need to decide whether to include an annuity illustration with the wake-up or follow-up letter. Any illustration which has not been requested by the member should:

    • encourage the member to consider which annuity is most appropriate for their circumstances and demonstrate the impact the decision will have on their retirement income
    • clearly state whether all rates are indicative rather than personalised illustrations
    • show a rate that the member is able to access
    • use standardised payment options, unless the member cannot access these
    • be as concise and clear as possible
    • clearly and prominently state that the member may be able to obtain a higher rate by shopping around.

    Unless the member has requested an alternative, an illustration should clearly set out at least:

    • any applicable guaranteed annuity rate or other guarantee
    • a single-life annuity
    • a joint-life annuity and either an escalating annuity, or a prominent statement as follows: “[This illustration does not include / we do not offer] an escalating annuity. An escalating annuity helps you keep up with inflation. With this type of annuity your payments will start lower than with other annuities, but will increase over time. Please contact us if you would like us to provide an illustration for an escalating annuity.”
    • either an enhanced/impaired life option, or a prominent statement as follows: “[This illustration does not include / we do not offer] a rate based on your health or factors that affect how long you might live, such as medication you take, where you live, your occupation and whether you smoke. This is known as an enhanced annuity and if you are eligible for one, [this type of annuity /another provider] could offer you a much higher level of income.”

    Annuity application forms

    Trustees should not send an annuity application form to members with either the wake-up or follow-up letters. They should not send an annuity application form until contact has been made between the member and the scheme or adviser/broker appointed to support members at retirement.

    Personalised illustrations

    Trustees should provide a personalised illustration to the member before the sale of an annuity is completed. This information may be obtained from the member by telephone, in writing or any other method the trustees consider appropriate.

    When collecting information from the member in order to send out a personalised illustration, annuity quotation or to set up any retirement income arrangement, trustees should ensure the member is asked the questions below and at each appropriate point is explicitly and clearly made aware of any risk resulting from their answers.

    • Are you taking any small pots as cash and/or taking tax-free cash?
    • Do you have a spouse, partner or dependant who might outlive you?
    • Are you concerned about your income losing value because of inflation?
    • Do you have any lifestyle or medical conditions that may mean you are eligible for an enhanced/impaired life annuity?
    • Do you have any other pots and would you benefit from combining them?

    Trustees can collect this information by:

    • ensuring the member fills out a comprehensive form online or in hard copy
    • telephone or through a meeting
    • ensuring the member has consulted a financial adviser/annuity broker
    • any other method the trustees consider appropriate.

    Trustees should also highlight to the member the benefits of shopping around.

    Trustees should include the following statement if quoting an annuity from a provider which does not offer an enhanced/impaired life annuity:

    “We do not offer a rate based on your health or factors that affect how long you might live, such as medication you take, where you live, your occupation and whether you smoke. This is known as an enhanced annuity and if you are eligible for this type of annuity, another provider could offer you a much higher level of income.”