AF7 Workbook Flashcards
Which statutory instrument defines the regulated activity for advising on the transfer of safe guarded benefits?
The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2015. Article 53E
List five of the core risks factors the FCA would expect firms to consider when establishing the risk warnings appropriate for a consumer considering transferring their benefits from a defined benefit scheme?
- The clients state of health.
- Loss of any guarantees.
- Whether the client has a partner or dependents.
- Inflation.
- Whether the client has sought advice from any other firms.
- Sustainability of income in retirement.
- Tax implications.
- Charges.
- Impact of means tested benefits.
- Debt.
- Investment scams.
What is the statutory definition of ‘safeguarded’ benefits’?
Any benefits which are not money purchase benefits r cash balance benefits.
List the criteria which have to be met for a scheme member to be entitled to a statutory transfer value?
- A member must have ceased accrual.
- Have made an application for a transfer value.
- Be more than twelve months from the schemes normal pension age.
State the two methods available to trustees when calculating a CETV, and and on what basis they would be implemented?
Their are two options:
- The best estimate method, which is used to provide the minimum transfer value.
- The alternative method, which can be used where a higher CETV is to be offered.
Why may trustees wish to pay a higher CETV?
- Employer or trustees request it.
- Scheme rules require it.
- Share cost scheme is in surplus.
What is the three step process for firms to 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 involved with the alternative course of action.
- Make clear that their actions are against the advice provided by the firm.
Where would you find the regulatory requirements which relate to pension transfer advice?
FCA Handbook COBS 19.1
List the 6 steps in the advice process?
- Establishing and defining the client relationship.
- Gathering client data and determining goals and expectations.
- Analysing and evaluating the clients financial status.
- Developing and presenting the financial plan.
- Implementation of the financial planning recommendations.
- Monitoring and review.
What is the statutory rate of revaluation that should be applied to deferred benefits from a defined benefit scheme for benefits accursed after 6th April 2011?
CPI capped at 2.5%
Explain what information can be obtained from an income and expenditure analysis in relation to pension transfer advice?
An income and expenditure analysis will hep to establish a clients basic income needs pre and post retirement. It will demonstrate if the client can save towards retirement or if they are spending all their income. It will help to identify any expenditure that will cease on or before retirement.
What are the main benefits that a scheme could provide on death before retirement.
- Spouse or dependent’s pension.
- Children’s pension.
- Lump sum death benefit.
- Return of contributions with or without interest.
What is the name of the organisation that currently provides a safety net for defined benefit schemes where the principle employer has gone into liquidation.
Pension Protection Fund.
What questions would you ask a client in order to evaluate their needs and objectives in relation to their pension (DB Scheme)? In order to complete a transfer value analysis as well as the additional questions in order to ascertain the clients needs and requirements.
- Cash commutation rates at the schemes NRA and clients preferred retirement age?
- Early retirement factors and whether these are applied to benefits revalued at the clients NRD or date of retirement?
- What is the earliest age that benefits can be taken without reduction?
- Does early/retirement require trustee/employer approval?
- What are the scheme rules with regard to payment of children’s pension?
- Are any lump sum death benefits payable on death before retirement?
- Has the scheme a history of discretionary increases?
- Has the scheme implemented a switch to CPI?
- What is the current funding status of the scheme?
- What is the status of the scheme - is it open or closed to new members?
- Are their any plans to wind the scheme up?
- Is a partial transfer from the scheme possible?
- Is their a nomination of benefits currently in place?
- What is the basis of revaluation? - Years and months or whole years?
- Is the spouses / dependants pension based on uncommuted pension?
- Does the scheme offer partial transfers?
- Does the pension offer pension increase exchange?
Questions to client:
- Is your wife financially independent? Is their any aspect of financial interdependency?
- Does your wife have benefits in their own right?
- Are your finances treated separately?
- Do you have any plans to marry?
- Who do you want to benefit in the event of your death?
- Have you made a Will? Is it up to date and what are the provisions?
