What is the key documentation that an adviser should retain on file for compliance purposes in respect to defined benefit transfers?
- Client Factfind
- Defined benefit transfer specific client questionnaire
- Disclosure documentation
- TVAS Report
- Statement of entitlement
- Ceding scheme information
- Recommended plan research
- Suitability report
As per COBS 19.1.2 and regarding Appropriate transfer value analysis (APTA), the comparison must…
- Ensure there is sufficient information for the client to make an informed decision.
- Draw the client’s attention to the factors that do and don’t support the firms advice.
- Be presented to the client in good time, and no later than when the key features document is provided.
The FCA rules do not stipultate a specific format of the comparison, however COBS 19.1.13 states that the comparison should….
- Take into account all of the client’s relevant circumstances
- Examine the benefits provided by the ceding scheme, and the effect of replacing them with the benefits of the proposed scheme
- Explain the assumptions on which the analysis is based and the rates of return required to match the benefits being given up
- Use rates of return to illustrate potential benefits which take into account the likely expected returns of the assets invested
- Make a comparison with the benefits available from crystallisation at normal retirement age under that scheme where an immediate crystallisation of benefits is sought prior to that age.
If the ceding scheme is a defined benefit scheme the comparison must use assumptions as stipulated by COBS 19.1.14 what do the assumptions refer to?
- Annuity interest rate
- The Retail Price Index (RPI)
- Average earnings index and rate for S148 orders
- Annuity interest rate for post-retirement limited price indexation
- Mortality rates
- The Consumer Price Index (CPI)
While there are no specific rules regarding the format or contents of the suitability report it is expected to include…
- A summary of the advantages and disadvantages of the personal recommendation
- An analysis of the financial implications if the recommendation is to opt out
- A summary of any other material information
The suitability of the advice should be…..
Based on the client’s entire personal and financial circumstances and make specific connections to their quantified needs and objectives
When a firm is identifying the risk factors that could be present with a client what risk factors is the firm looking to cover?
- Client’s state of health
- Loss of any guarantees
- Whether the client has a partner or dependents
- Inflation
- Whether the client has a partner or dependents
- Sustainability of income retirement
- Tax implications
- Charges
- Impact of means-tested benefits
- Debt
- Investment scams
When is there no requirement for a firm to ask the client questions to identify whether any risk factors are present?
Where the client’s pension savings is £10,000 or less and there are no safeguarded benefits.
Instead the firm must provide risk warnings relevant to each pension decumulation product it offers.
If a client has decided to access their pension through the various decumulation ways, what next steps must the firm take?
- Has the client received guidance or regulated advice?
- What are the risk factors?
- Provide the suitable risk warnings in relation to the risk factors identified.
How long should the firm hold records relating to pension transfer advice?
Indefinitely
With relation to the ‘Pension reforms and insistent clients’ factsheet published by the FCA, what three-step process must firms adopt when advising an insistent client?
- Provide advice that is suitable to the individual client in line with the normal advice process
- Make clear the risks of the alternative course of action
- Make clear that their actions are against the advice provided by the firm
When seeking to draw conclusions about the suitabilty of the pension transfer, a pension transfer specialist should….
- Review the proposed scheme and investment relative to both the client’s attitude to transfer risk and their attitude to investment risk.
- Ensure that the potential returns and all relevant charges for the proposed scheme and investments have been appropriately taken into account in the APTA
- Consider whether there are alternative solutions that could meet the client’s needs and objectives, either with less risk or without giving up the safeguarded benefit.
How are flexible benefits defined?
Money purchase benefits that can access pension flexibilties as defined within the Taxation of Pensions Act 2014
How are safeguarded benefits defined?
Benefits that are not money purchase or cash balance benefits. they include defined benefits, guaranteed pensions includiong guaranteed minimum pensions (GMPs) and guaranteed annuity rates (GARS)
If the scheme receives a member’s transfer request, how long does the scheme have to notify the member that they need to take advice?
1 month
When a member requests a transfer, how long does the scheme have to provide the member with a transfer value?
3 months
When must the member be given a Statement of Entitlement?
Within 10 days of the guarantee date of the transfer value
If the trustees are happy that advice has been given to the member then how long do they have to make the transfer?
Within 6 months of the guarantee date of the transfer value
If a CETV is below £30,000 do the scheme timescales change when providing information to the client?
No there will be the same timescales although no advice will be required
When must the scheme inform TPR with regards to a member’s pension transfer?
If the transfer exceeds the lower of £1.5m or 5% of scheme assets
If the transfer has been instigated by the employer, who would pay the advice fees and how would the adviser be chosen?
The employer would be expected to pay and they can either arrange the adviser themselves or pay for the member’s choice of adviser
When calculating a Cash Equivalent Transfer Value (CETV) what are the two methods that the scheme can choose to use?
- The best estimate method
- An alternative method
Who’s responsibility is it when calculating the CETV?
The trustees
What is the best estimate method?
The scheme gives its best estimate of the cost of providing the member’s benefits under the scheme
