Pensions supplementary provisions

Part

COBS Conduct of Business Sourcebook

Chapter

Pensions supplementary provisions

Printed on: 06/11/2024

Rulebook at: 02/07/2012

COBS 19

Pensions supplementary provisions

COBS 19.1

Pension transfers and opt-outs

01/11/2007

Preparing and providing a transfer analysis

COBS 19.1.1

If an individual who is not a pension transfer specialist gives a personal recommendation about a pension transfer or pension opt-out on a firm's behalf, the firm must ensure that the recommendation is checked by a pension transfer specialist.

01/11/2007

COBS 19.1.2

A firm must:

(1) compare the benefits likely (on reasonable assumptions) to be paid under a defined benefits pension scheme with the benefits afforded by a personal pension scheme or stakeholder pension scheme, before it advises a retail client to transfer out of a defined benefits pension scheme;
(2) ensure that that comparison includes enough information for the client to be able to make an informed decision;
(3) give the client a copy of the comparison, drawing the client's attention to the factors that do and do not support the firm's advice, no later than when the key features document is provided; and
(4) take reasonable steps to ensure that the client understands the firm's comparison and its advice.

01/11/2007

COBS 19.1.3

In particular, the comparison should:

(1) take into account all of the retail client's relevant circumstances;
(2) have regard to the benefits and options available under the ceding scheme and the effect of replacing them with the benefits and options under the proposed scheme;
(3) explain the assumptions on which it is based and the rates of return that would have to be achieved to replicate the benefits being given up; and
(4) be illustrated on rates of return which take into account the likely expected returns of the assets in which the retail client's funds will be invested.

01/05/2012

COBS 19.1.4

When a firm compares the benefits likely to be paid under a defined benefits pension scheme with the benefits afforded by a personal pension scheme or stakeholder pension scheme (COBS 19.1.2R (1)), it must:

(1) assume that:

(a)

the annuity interest rate is the intermediate rate of return appropriate for a level or fixed rate of increase annuity in (COBS 13 Annex 2 3.1R(6)) unless COBS 19.1.4B R applies or the rate for annuities in payment (if less);

(b)

the retail prices index is

2.5%

(c)

the average earnings index and the rate for section 21 orders is

4.0%

(d)

the pre-retirement limited price indexation revaluation is

2.5%

(e)

the annuity rate for post-retirement limited price increases with maximum increases less than or equal to 3.5% or with minimum increases more than or equal to 3.5% is the rate in (a) above; otherwise it is the rate in (f) below;

(f)

the index linked pensions rate is the intermediate rate of return in COBS 13 Annex 2 3.1 R (6) for annuities linked to the retail prices index unless COBS 19.1.4B R applies;

(g)

the mortality rate used to determine the annuity is based on the year of birth rate derived from each of the Institute and Faculty of Actuaries' Continuous Mortality Investigation tables PCMA00 and PCFA00 and including mortality improvements derived from each of the male and female annual mortality projections models, in equal parts;

or use more cautious assumptions;
(2) calculate the interest rate in deferment; and
(3) have regard to benefits which commence at difference times.

01/05/2012

COBS 19.1.4A

For any year commencing 6 April, the use of the male and female annual CMI Mortality Projections Models in the series CMI(20YY-1)_M_[1.25%] and CMI(20YY-1)_F_[1.25%], where YY-1 is the year of the Model used, will tend to show compliance with COBS 19.1.4R (1)(g).

01/05/2012

COBS 19.1.4B

Firms must apply the annual provisions at COBS 13 Annex 2 3.1R(6) on a monthly basis in any month where the yields on the 15th of the relevant month would give a rolling 12 month average annuity rate that varies by at least 0.2% from the previous rate.

01/05/2012

COBS 19.1.5

If a firm arranges a pension transfer or pension opt-out for a retail client as an execution-only transaction, the firm must make, and retain indefinitely, a clear record of the fact that no personal recommendation was given to that client.

01/11/2007

Suitability

COBS 19.1.6

When advising a retail client who is, or is eligible to be, a member of a defined benefits occupational pension scheme whether to transfer or opt-out, a firm should start by assuming that a transfer or opt-out will not be suitable. A firm should only then consider a transfer or opt-out to be suitable if it can clearly demonstrate, on contemporary evidence, that the transfer or opt-out is in the client's best interests.

01/11/2007

COBS 19.1.7

When a firm advises a retail client on a pension transfer or pension opt-out, it should consider the client's attitude to risk in relation to the rate of investment growth that would have to be achieved to replicate the benefits being given up.

01/11/2007

COBS 19.1.7A

When giving a personal recommendation about a pension transfer, a firm should clearly inform the retail client about the loss of the fixed benefits and the consequent transfer of risk from the defined benefits pension scheme to the retail client, including:

(1) the extent to which benefits may fall short of replicating those in the defined benefits pension scheme;
(2) the uncertainty of the level of benefit that can be obtained from the purchase of a future annuity and the prior investment risk to which the retail client is exposed until an annuity is purchased with the proceeds of the proposed personal pension scheme or stakeholder pension scheme; and
(3) the potential lack of availability of annuity types (for instance, annuity increases linked to different indices) to replicate the benefits being given up in the defined benefits pension scheme.

01/05/2012

COBS 19.1.7B

In considering whether to make a personal recommendation, a firm should not regard a rate of return which may replicate the benefits being given up from the defined benefits pension scheme as sufficient in itself.

01/05/2012

COBS 19.1.8

When a firm prepares a suitability report it should include:

(1) a summary of the advantages and disadvantages of its personal recommendation;
(2) an analysis of the financial implications (if the recommendation is to opt-out); and
(3) a summary of any other material information.

01/11/2007

COBS 19.1.9

If a firm proposes to advise a retail client not to proceed with a pension transfer or pension opt-out, it should give that advice in writing.

01/11/2007

COBS 19.2

Personal pensions, FSAVCs and AVCs

01/11/2007

Financial promotions

COBS 19.2.1

A financial promotion for a FSAVC should contain a prominent warning that, as an alternative an AVC arrangement exists, and that details can be obtained from the scheme administrator (if that is the case).

01/11/2007

Suitability

COBS 19.2.2

When a firm prepares a suitability report it must:

(1) (in the case of a personal pension scheme), explain why it considers the personal pension scheme to be at least as suitable as a stakeholder pension scheme; and
(2) (in the case of an FSAVC), explain why it considers the FSAVC to be at least as suitable as any stakeholder pension scheme, AVC or facility to make additional contributions to an occupational pension scheme which is available to the retail client.

01/11/2007

COBS 19.2.3

When a firm promotes a personal pension scheme, including a group personal pension scheme, to a group of employees it must:

(1) be satisfied on reasonable grounds that the scheme is likely to be at least as suitable for the majority of the employees as a stakeholder pension scheme; and
(2) record why it thinks the promotion is justified.

01/11/2007

COBS 19.3

Product disclosure to members of occupational pension schemes

01/11/2007

COBS 19.3.1

(1) When a firm sells, personally recommends or arranges the payment of an AVC contribution by a member of an occupational pension scheme to be secured by a packaged product purchased by the scheme trustees, it must give the trustees sufficient information to pass to the relevant member for that member to be able to make informed comparisons between the AVC and any alternative personal pension schemes and stakeholder pension schemes available.
(2) This rule applies to an AVC where members' benefits are linked to the earmarked segments of a life policy or scheme, but it does not apply to an AVC where the trustees make pooled investments and have their own arrangements for allocating investment returns to determine members' AVC benefits.

01/11/2007

COBS 19.4

Open market options

01/11/2007

COBS 19.4.1

In this section:

(1) 'intended retirement date' means:

(a) the date (according to the most recent recorded information available to the provider) when the scheme member intends to retire, or to bring the benefits in the scheme into payment, whichever is the earlier; or
(b) if there is no such date, the scheme member's state pension age;

(2) 'open market option' means the option to use the proceeds of a personal pension scheme, stakeholder pension scheme, FSAVC, retirement annuity contract or pension buy-out contract to purchase an annuity on the open market; and
(3) 'open market option statement 'means:

(a) the fact sheet "Your pension: it's time to choose" available on www.moneyadviceservice.org.uk, together with a written summary of the retail client's open market option, which is sufficient for the client to be able to make an informed decision about whether to exercise, or to decline to exercise, an open market option; or
(b) a written statement that gives materially the same information.

06/04/2011

When to send open market options statement and six-week reminder

COBS 19.4.2

(1) If a retail client asks a firm for a retirement quotation more than four months before the client's intended retirement date, the firm must give the client an open market option statement with or as part of its reply, unless the firm has given the client such a statement in the last 12 months.
(2) If a firm does not receive such a request, it must provide a retail client with an open market option statement between four and six months before the client's intended retirement date.

01/11/2007

COBS 19.4.3

The firm must:

(1) remind the retail client about the open market option statement; and
(2) tell the client what sum of money will be available to purchase an annuity on the open market;

at least six weeks before the client's intended retirement date.

01/11/2007

COBS 19.4.4

If a retail client with an open market option tells a firm that he is considering, or has decided:

(1) to discontinue an income withdrawal arrangement; or
(2) to take a further sum of money from his pension to buy an annuity as part of a phased retirement,

the firm must give the client an open market option statement, unless the firm has given the client such a statement in the last 12 months.

01/11/2007