Deck 1 Flashcards
Cash flow cobs 19 annex 4a
X 8
- 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
APTA cobs 19 annex 4a
Info x 8
- 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
APTA cobs 19 annex 4a
Assumptions x 4
- 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
APTA
TVC
Appropriate pension transfer analysis
- rules/ assumptions / cobs
Transfer value comparator
- compare what is required to meet same income with an annuity
Section 48
- pensions schemes act 2015
- confirms advice has been taken on over £30k
When should trustees notify TPR
Over £1.5mill or 5 % of scheme assets if less
Formula for max PCLS on DB scheme
PCLS =
20 X pre-commutation pension x C /
20 + 3C
Pension increase exchange PIE
3 x benefits and drawbacks
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
Employers convenant
Employers legal obligation and financial ability to support their defined benefits scheme now and in the future
CETV changes
Up CETV down
UP INFLAT DOWN
DOWN ANNUITY UP
DOWN DISCOUNT UP
Death benefits on lifetime annuity and db
- survivors annuity - nominee / successor
Tax free under 75 and taxed over 75. Neither against LA - guarantee period
- lump-sum death benefit
LTA protections
- 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
When can can trustees off les than the initial cash equivalent transfer ICE
- scheme is underfunded after insufficiency report
- to allow wind up expenses
- to retain parity
Two methods of calculating CETV
- best estimate method - based on expected cost
- alternative method- when is going to be heigher than minimum
2 methods of calculating CETV
- best estimate - cost of paying members benefits
- alternative- if CETV is above minimum
Risks of transfers x 8
- transfer risk / loss of guarantee
- investment risk is with him
- longevity risk
- annuity rate risk
- inflation risk
- sequencing risk
- shortfall risk
- economic / political risk
Standards for incentive excersies x 8
- 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
What restriction on benefits if ppf takes over prior to retirement
- 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
How is CETV calculated x 6
- 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
PCLS formula
20 x pre comm pension x C /
20 + 3C
What should an adviser retain
- 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
Statutory right of transfer
X 6
- 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
What is triage advice
- 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
What is abridged service
- 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
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
GAD rate
Eg £57 per £1000
( 57/1000 ) x pension
So max would be 150% of this
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%
Divorce
Offsetting, sharing, earmarking
Sharing order would go against LTA of other party
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
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
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%
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
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
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
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
LTA excess x 2
Lump sum 55%
Income 25%
% of lta used is 2 decimals rounded down
Primary protection
- rights must be more than 1.5 on 5/4/06
- % excess is x by 1.8mill
- add this to 1.8mill
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
Trustees in deficit fund
- take advice from actuary
- consult with employer
- agree recovery plan
- agree payment schedule or strategy
- inform TPR
- monitor position
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
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
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
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
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
Info to advice on investment strategy
X 6
- time frame
- CFL
- ATR
- Experience
- Ethical
- pay for reviews
Cobs 19 annex 4c tvc assumptions
- CPI 2%
- RPI 3%
- av earnings 3.5%
- annuity expense 4%
- prior product charges 0.75%
Section 143 valuation
To check if benefits exceed PPF coverage or not
Lifetime annuity- HMRC requirements
- from insurance company
- paid for life and no limit on guarantee
- nothing to stop income reducing
Max guarantees db and annuity
Db 10 years
Annuity unlimited but contract will have conditions
SMART objective
Specific Measurable Achievable Relevant Time bound
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
Abridged advice x6
- transfer is unlikely suitable
- clients intentions
- attitude to transfer risk
- retirement income needs
- understanding of investment risk
- alternative ways
Class 3 and triple lock
Cost 795.60
Qualify 260.30 pa
Triple lock 2.5%, CPI, av earning
SR
Suitable advice must be in writing and show advantaged and disadvantages. Must include material information and details of analysis of financial implications
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
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
