Section 9 (65-72)

Question 1

Explain the difference between flexible and safeguarded benefits

Answer 1

Flexible benefits - money purchase, cash balance and any benefit that is calculated by reference to a fund

Safeguarded benefits - those than are neither money purchase nor cash balance

Question 2

How does entering into phased retirement for a 65 year old based on flexi-access drawdown as opposed to lifetime annuities compare with regard to the taxation of lump-sum death benefits?

Answer 2

• In both instances the uncrystallised and crystallised element will be paid out tax-free provided it is paid out within the 2 year window following the member’s death.
• Also, the uncrystallised element will be tested against the member’s lifetime allowance

Question 3

List the issues trustees must take into account when considering offering reduced CETVs

Answer 3

• Degree of underfunding
• Strength of employer covenant
• Recovery plan structure
• Any contingent assets
• Implications of not applying a reduction (or a lesser reduction)

Question 4

What four aspects should consideration be given to when assessing the suitability of the receiving money purchase scheme?

Answer 4

1. Flexibility of income
2. Options for payment of death benefits
3. Investment options
4. Cost of administration/services

Question 5

Outline the information that must be communicated to an insistent client

Answer 5

• The firm has not recommended the transaction/the transaction is not in accordance with the firm’s personal recommendation
• The reasons why this is the case
• The risks of the proposed transaction
• The reasons why the firm did not recommend the transaction

Question 6

What are the assumptions that must be used within the TVC calculation process?

Answer 6

• Annuity interest rate
• RPI
• CPI
• Average earnings
• Mortality rate
• Product cost (0.75%)
• Purchase cost of the annuity (4%)
• Fixed coupon yield

Question 7

The FCA provides rules and guidance to help advisers determine the suitability or otherwise of a
proposed transfer of safeguarded benefits. These rules and guidance are contained in COBS 9 and
19.1.

Outline these rules and guidelines.

Answer 7

• Start with the assumption that the transfer is unsuitable
• Take into account the clients intention for accessing the benefits
• Attitude to/understanding of risk of giving up safeguarded benefits for flexible benefits
• Attitude to/understanding of investment risk
• Income needs/how they can be achieved/role of safeguarded benefits in achieving these/impact on need to transfer/any trade offs
• Alternative ways of achieving their objectives/ways of achieving benefits if there is no transfer

Question 8

What actions do the FCA require PTS to undertake?

Answer 8

• Check entirety and completeness of advice
• Confirm that any personal recommendation is suitable for client
• Confirm in writing that they agree with the proposed advice before it is provided to the client