Guidance for trustees and employers

As part of its commitment to promoting the good running of defined contribution schemes, the Pensions Regulator has published the first of a planned series of good practice guidance for trustees and employers. The Retirement Options guidance will help employers and trustees ensure they have effective processes in place, and inform members so they are able to make the best possible choices on their retirement income.

The guidance covers Retirement Options and the open market option in occupational Defined Contribution (DC) schemes. This is a critical stage in the individual's retirement planning process where the member must take a decision. Unless the process works efficiently and the member gets the level of support that they need, they may receive an inappropriate annuity or it may be poor value for money.

Trustees have a duty to ensure that there is a process in place to convert the member's money purchase fund into a retirement income. The Retirement Options guidance sets out good practice in key areas, and encourages trustees and employers of DC schemes to follow good practice likely to lead to informed decisions being taken and emphasise to members the advantages of obtaining financial advice.

Trustees must also ensure that members are aware of their right to exercise the open market option, where, instead of the scheme's process, they use their fund to buy an annuity from an insurance company of their choice. Shopping around for an annuity can often produce a higher pension income and the decision to purchase an annuity is irreversible, so it is important that members are able to make an informed choice.