DC flexibility: providing DC access through external providers.

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1 DC flexibility: providing DC access through external providers

2 DC flexibility: providing DC access through external providers March 2015 Background Many schemes and sponsors are being approached by regulated third party providers with a view to linking with the scheme to offer occupational pension scheme members access to services such as drawdown facilities provided by those third parties. You may wish to facilitate members access to flexibilities under the new rules which are not directly offered by the scheme, but care is required. Communications that amount to an invitation or an inducement to engage in investment activity are governed by the rules on financial promotions. Equally arranging deals in investments and advising on investments are regulated activities. Breaching any of those rules is a criminal offence. You also have wider fiduciary duties to consider. This best practice guide will help you navigate a safe path through this tricky new area. Allen & Overy LLP 2015

3 Best practice seven top tips 1. Do your due diligence Consider carefully whether it is in members interests to link up with any particular provider. However much you emphasise the need to shop around, members are likely to trust the trustees and see the linked arrangement as a default or pre-approved option. Don t just highlight offerings from your investment manager or administrator carry out proper due diligence in advance of appointing any provider to ensure that the product being offered is the most suitable one for members. 2. Keep the product under review Once any link is in place then, as with any other scheme facility or provider, you will need to keep the product and provider under review to ensure that it continues to offer good value in the marketplace and be appropriate for members. 3. Make factual statements only The general position is that regulated investment products can be promoted only by those people who are authorised by the FCA. Providing factual information only should not constitute financial promotion or investment advice, so ensure that your member communications do not recommend the product or encourage them to investigate that option more than any other. 4. Advise the member to seek independent advice All communications with members about their options should recommend that they consider taking independent advice, and should include signposts to the Pension Wise guarantee service in line with regulations.

4 5. All product information should come from the regulated provider The content of all specific product information must be approved by an FCAauthorised person. We suggest that written materials should be produced by the provider or show their logo to make this clear. You can pass this information on without breaching the rules, but bear in mind points 1 and 3 above. You might prefer simply to tell members where they can get the information. 6. Make sure the provider mentions the Open Market Option (OMO) Strictly speaking, the OMO refers to a member s right to select the provider and terms of an annuity, but we are using it here in the more general sense of shopping around. Drawdown providers will not be legally required to ensure that members have had the opportunity to shop around for the most suitable product so consider building this requirement into any arrangement you make with a provider, to ensure that they will remind members that they can choose from the full range of options and providers. 7. Don t benefit financially Neither the trustees nor the scheme should benefit financially (for example, by receiving a discounted rate on other services or products) from the arrangement. This is important both in terms of transparency and because the trustees might otherwise breach the rules on arranging deals in investments.

5 DC flexibility: providing DC access through external providers March 2015 Maria Stimpson Partner Tel Däna Burstow Partner Tel Neil Bowden Partner Tel Helen Powell PSL Counsel Tel For further information please visit: Allen & Overy LLP 2015

6 For more information, please contact: London Allen & Overy LLP One Bishops Square London E1 6AD United Kingdom Tel Fax GLOBAL PRESENCE Allen & Overy is an international legal practice with approximately 5,000 people, including some 525 partners, working in 46 offices worldwide. Allen & Overy LLP or an affiliated undertaking has an office in each of: Abu Dhabi Amsterdam Antwerp Athens (representative office) Bangkok Barcelona Beijing Belfast Bratislava Brussels Bucharest (associated office) Budapest Casablanca Doha Dubai Düsseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Istanbul Jakarta (associated office) Johannesburg London Luxembourg Madrid Mannheim Milan Moscow Munich New York Paris Perth Prague Riyadh (associated office) Rome São Paulo Shanghai Singapore Sydney Tokyo Toronto Warsaw Washington, D.C. Yangon Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP s affiliated undertakings. Allen & Overy LLP 2015 CS1503_CDD-41514_ADD