1
Q
Cash flow cobs 19 annex 4a
X 8
A
- model in real terms using cpi set by cobs
- if net tax band and limits are reasonable
- all tax charges in proposed and ceding
- include stress testing scenarios
- use returns reflective of assets
- pattern of benefits
- life expectancy
- more cautious assumptions
2
Q
APTA cobs 19 annex 4a
Info x 8
A
- tax position
- state benefits
- pattern of benefits taken
- plan past reasonable life expectancy
- will it meet the clients income need
- death benefits
- trade offs of objectives
- all charges unless will pay anyway
3
Q
APTA cobs 19 annex 4a
Assumptions x 4
A
- rates of return reflect investment potential of the assets that would be invested
- annuity assumption cons 19 ann 4c 1R 2
- assumptions of income likely to be pain cobs annex 4c 1r 4
- use more cautious assumptions when appropriate
4
Q
APTA
TVC
A
Appropriate pension transfer analysis
- rules/ assumptions / cobs
Transfer value comparator
- compare what is required to meet same income with an annuity
5
Q
Section 48
A
- pensions schemes act 2015
- confirms advice has been taken on over £30k
6
Q
When should trustees notify TPR
A
Over £1.5mill or 5 % of scheme assets if less
7
Q
Formula for max PCLS on DB scheme
A
PCLS =
20 X pre-commutation pension x C /
20 + 3C
8
Q
Pension increase exchange PIE
3 x benefits and drawbacks
A
Benefits
- higher initial income
- potential higher pcls if calc by max hmrc
- may be in poor health or less average life
Drawbacks
- if live longer may lose out
- annual allowance charge 20;1 from lifetime allowance
- may affect means tested benefits
9
Q
Employers convenant
A
Employers legal obligation and financial ability to support their defined benefits scheme now and in the future
10
Q
CETV changes
A
Up CETV down
UP INFLAT DOWN
DOWN ANNUITY UP
DOWN DISCOUNT UP
11
Q
Death benefits on lifetime annuity and db
A
- survivors annuity - nominee / successor
Tax free under 75 and taxed over 75. Neither against LA - guarantee period
- lump-sum death benefit
12
Q
LTA protections
A
- primary - can’t lose
- individual- can’t lose
- enhanced - can lose
- fixed - can lose
Check if offered enhanced transfer
Check eligibility to fixed or individual 2016
Fixed only fir deferred in 2016
Individual if benefits were valued over 1mil 2016
13
Q
When can can trustees off les than the initial cash equivalent transfer ICE
A
- scheme is underfunded after insufficiency report
- to allow wind up expenses
- to retain parity
14
Q
Two methods of calculating CETV
A
- best estimate method - based on expected cost
- alternative method- when is going to be heigher than minimum
15
Q
2 methods of calculating CETV
A
- best estimate - cost of paying members benefits
- alternative- if CETV is above minimum
16
Q
Risks of transfers x 8
A
- transfer risk / loss of guarantee
- investment risk is with him
- longevity risk
- annuity rate risk
- inflation risk
- sequencing risk
- shortfall risk
- economic / political risk
17
Q
Standards for incentive excersies x 8
A
- cash should not be contingent on member accepting
- for transfers, advice should be provided
- Modification exercises- advice provided
- comm fair, clear , unbiased, straightforward
- records should be retain for audit
- no undue pressure / sufficient time
- over 80s treated as vulnerable and only in a opt in basis
- all involved shoukd act in good faith
18
Q
What restriction on benefits if ppf takes over prior to retirement
A
- 90% of value of accrued benefits
- subject to cap of 90% of £41,461.07
- if before NRA cap will reduce
- may benefit from long service cap of 3% increase for every year over 20
- max dbl standard cap
- spousal capped at 50%
- qualifying children 25% (max 50%)
- escalation will be capped
- not normally be allowed to transfer out
- pcls 25%
- ppf cap may change as ruled unlawful fir age discrimination
19
Q
How is CETV calculated x 6
A
- calculate preserved pension at the date of leaving
- revalue to normal retirement age by scheme rules. Stat min occurs GMP (contracted out) and CPI otherwise
- calculate capital cost of buying revalued pension with assumed annuity
- take into account dependents benefit
- add this to revalued pcls
- discount the capital cost with assumed rate of invest growth from actuary
20
Q
PCLS formula
A
20 x pre comm pension x C /
20 + 3C
21
Q
What should an adviser retain
A
- terms and disclosure docs
- fact find
- statement of entitlement to transfer v
- ceding scheme info
- TVC
- risk questionnaire
- illustration evidence of new scheme
- evidence of PTS sign off
- suitability report
22
Q
Statutory right of transfer
X 6
A
- deferred member
- more than 12 months before nra
- entitled to transfer value once per year
- must complete paperwork in timescales
- may not get for another 12 months
- or may charge for further transfer value
23
Q
What is triage advice
A
- education service
- non- advised
- designed to discuss features, benefits and drawbacks of dc compared to db
- help them decide if they want advice
- save on fess
24
Q
What is abridged service
A
- preliminary form of advice
- designed to see if transfer could be suitable based on objectives and risk profile
- no TVC or APTA or consideration of new scheme
- cannot result in transfer recommendation
- if unclear customer can go full advice
- cheaper than full advice
- in response to contigent charging rules
25
Transfer club
- move from one public sector employer to another
- treats both periods as one continuous
- maintains link of period on first service and earnings in second
- creates a higher entitlement
- 1st provides cetv to 2nd
- 2nd converts into benefits
- actual years may be different to allow differences in scheme structure
- such as pcls, death benefits, inflation proofing
26
GAD rate
Eg £57 per £1000
( 57/1000 ) x pension
So max would be 150% of this
27
PPF - pension protection fund
Revaluation
- pre 6/4/09 CPI with cap 5%
- after which is capped 2.5%
- pension would reduce to 90%
- long service cap over 20 years 3% max double
- spouses will be 50% of reduced
- qualifying children 25% x 2
- will increase with CPI max 2.5%
27
Divorce
Offsetting, sharing, earmarking
Sharing order would go against LTA of other party
28
Section 32
- buy out of occupational scheme
- differed annuity contract
- cannot receive further contributions
- buddy transfer
- pre 5/6/06 potential prot tax free cash
- must pay gmp 60/65
- if fund doesn't cover revalued to this age transfer may be restricted
- value will go to estate if death prior to retirement
- can only provide 50% spousal and not children
- GMP lost on transfer
- post 88 escalate pre 88 level
- no Pcls from gmp but can be taken into account
29
Trans protection
- fixed 2016
No min, 1.25 cover, pcls 25% of 1.25, no ongoing, lose on transfer
- ind 2016
Min 1 mill 5/6/16, cover is rights on 5/6/16 max 1.25. Pcls 25% of value, ongoing allowed, can transfer
30
Cobs annex 4c
Assu.ptions for tvc rates
- RPI 3%
- av earnings index and rate for section 148 to be 3.5%
- CPI 2%
- annuity expense allowance 4%
- product charges can be assumed as 0.75%
31
Conditions for PPF x 5
- must not be a DC scheme
- mustbe not commenced wind up before 5/4/05
- insolvency event must have happened
- no chance it can be rescued
- insufficient assets to at least pay PPF levels
32
Actions to resolve deficit x 7
- close for new entrants
- close for future accrual
- put the NRA back for future accrual
- reduce accrual rate
- switch to CARE basis
- reduce escalation/ revaluation not below stat
- reduce transfer values
33
Actions to resolve deficit x 7
- close for new entrants
- close for future accrual
- put the NRA back for future accrual
- reduce accrual rate
- switch to CARE basis
- reduce escalation/ revaluation not below stat
- reduce transfer values
34
Fixed protection permitted transfers x 3
- all pension rights under arrangement fir person must be transferred
- must go to recognised dc or overseas
- must be actuarially equivalent
35
LTA excess x 2
Lump sum 55%
Income 25%
% of lta used is 2 decimals rounded down
36
Primary protection
- rights must be more than 1.5 on 5/4/06
- % excess is x by 1.8mill
- add this to 1.8mill
37
Role of trustee x 7
- ensure processes in place to implement transfers timely
- maintain accurate records
- not request advice
- check they've had appropriate advice
- support members with fca register
- notify TPR 1.5% 5%
- monitor impact
38
Trustees in deficit fund
- take advice from actuary
- consult with employer
- agree recovery plan
- agree payment schedule or strategy
- inform TPR
- monitor position
39
Transfer risk and factors
- represents views of risks associated with transfer and giving up safeguarded
- separate from invest risk
- includes risk and benefits of current and new schemes
- consider attitude to certain income
- access funds in unplanned way, how this would affect sustainability
- attitude and experience in investing
- attitude to restrictions of current
40
Scheme administrator x 5
- register with hmrc
- operate tax relief under relief at source
- report events to HMRC
- provide info on LTA, benefits and transfers
- make returns to HMRC
41
Investment linked annuities
With profit
- invested in life office with profit
- smooth returns
- returns are bonuses
- Initially level determined by expected bonuses
- varies depending on bonus declared following year
Unit linked
- Initial income in monetary terms converted to units
- value of units depends payment
- annuitant selects anticipated growth rate
- units encased to provide income
42
Fca risk factors x 10
- health
- loss of guarantee
- do they have partner / dependents
- inflation
- have they shopped around
- sustainability of income
- tax
- charges
- debt
- impact on state benefits
43
Scheme pension - hmrc requirements
X 9
- paid for life
- at least annually
- incapable of being reduced year on year
- paid by scheme admin or insurance Co
- can pay for dependent
- guarantee of no more than 10 years
- can be trans to another insurance Co
- can incorporate lump sum death
- PAYE
44
Info to advice on investment strategy
| X 6
- time frame
- CFL
- ATR
- Experience
- Ethical
- pay for reviews
45
Cobs 19 annex 4c tvc assumptions
- CPI 2%
- RPI 3%
- av earnings 3.5%
- annuity expense 4%
- prior product charges 0.75%
46
Section 143 valuation
To check if benefits exceed PPF coverage or not
47
Lifetime annuity- HMRC requirements
- from insurance company
- paid for life and no limit on guarantee
- nothing to stop income reducing
48
Max guarantees db and annuity
Db 10 years
| Annuity unlimited but contract will have conditions
49
SMART objective
```
Specific
Measurable
Achievable
Relevant
Time bound
```
50
Universal credit
- Income treated as income £1 loses 63p
- capital exceeds 16k benefits are lost
- more than 6k ever 250 counts as £1 weekly income
51
Abridged advice x6
- transfer is unlikely suitable
- clients intentions
- attitude to transfer risk
- retirement income needs
- understanding of investment risk
- alternative ways
52
Class 3 and triple lock
Cost 795.60
Qualify 260.30 pa
Triple lock 2.5%, CPI, av earning
53
SR
Suitable advice must be in writing and show advantaged and disadvantages. Must include material information and details of analysis of financial implications
54
One page summary x 6
- summary of recommendations
- abridged or full
- details of ongoing advice
- risks associated- sign
- charges
- Initially advice fee in cash terms and number of months would take to pay
55
Factors of transferring from GAR
- what is the GAR rate
- what age can it be taken from
- structure of annuity
- transfer charges or penalties
- pre crystallisation death benefits
