mycongruent.com Congruent CalculationsTM DB Pension Transfers Redress Calculator MYCONGRUENT.COM PAGE 1

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1 mycongruent.com Congruent CalculationsTM DB Pension Transfers Redress Calculator MYCONGRUENT.COM PAGE 1

2 OUR APPROACH The redress calculator developed by Congruent will assist the user determine the amount of redress that is due if a complaint (received after 3 August 2016) is upheld about advice given to a customer to transfer all or part of the cash value of the accrued benefits under a Defined Benefit ( DB ) pension scheme into a money purchase arrangement. The calculation framework follows the methodology described in the Financial Conduct Authority ( FCA ) guidance note FG17/9. The valuation of benefits lost in the transfer requires some information about the DB scheme and the member. In particular the following basic details are required as user inputs: Member date of birth Member gender Spouse date of birth* Spouse gender Calculation date Transfer date Transfer value at calculation date Additional transfer value** Date of leaving the scheme (for deferred members) Annual pension payment at transfer date (or date of leaving scheme for deferred members) Normal scheme retirement age e.g 65 Spouse benefit (% of pension) e.g 50 Additional pension amount payable at retirement*** Indexation of pension amount pre retirement e.g. CPI Indexation cap (as a %) - pre-retirement e.g. 5 Indexation floor (as a %) - pre-retirement e.g. 0 Indexation of pension amount post retirement e.g. RPI Indexation cap (as a %) - post-retirement Indexation floor (as a %) - post-retirement Personal pension charges (as a %) e.g The calculator determines the present value of the retirement benefits that would have been paid to the member (or the spouse at the relevant percentage on the member death) at the normal scheme retirement date had the member not elected to transfer, derived using the following risk factors: Market interest rates (based on zero coupon gilt yields) published by the Bank of England. These are the discount rates that are applicable from the normal scheme retirement date i.e. market implied forward interest rates. Inflation rates (based on RPI inflation linkers ) published by the Bank of England. The CPI rates are taken as RPI less 1%. The inflation rates are used to adjust the pension amount payable at each pension payment date post scheme normal retirement date. Mortality rates are taken from PMA08 (males) and PFA08 (Females) tables published by the Institute and Faculty of Actuaries using a long term rate improvement of 1.25% per annum. MYCONGRUENT.COM PAGE 1

3 A pre-retirement discount rate i.e. the interest rate applicable from the calculation date to the scheme normal retirement date is derived from FTSE All Share dividend yield with an adjustment for inflation and dividend growth i.e. a risk adjusted rate. A pre-retirement inflation factor that is taken as the spot rate (from calculation date to the normal scheme retirement date) derived from the inflation curve. Where the transfer date is before the calculation date any cash enhancement will be rolled up from the date of payment to the calculation date using 50% of the return of the FTSE 100 index. The above present value is further adjusted as follows: The risk free rate is adjusted by a spread 0.60% to reflect charges prevalent in the annuity market. The member is assumed to take a Pension Commencement Lump Sum ( PCLS ). Most schemes permit the member to take 25% of the value as a lump with a reduction to the annual pension amount. The FCA methodology does not require the use of commutation factors but employs an adjustment of 1.6% to the risk free discount rates to compensate for this factor. Other assumptions: Where there is a benefit to the spouse it is assumed that 85% of members are married at the scheme retirement date. There is no gender bias in the annuity calculation and the age specific mortality rates are determined as 50% of the male and 50% of female using the specified mortality tables noted above. Pre-retirement rates are adjusted to allow for charges in personal pension plans e.g. SIPPS. In this case a deduction of 0.75% is applied to the pre-retirement discount rate. Notes: * Where no date of birth is specified for the spouse the calculation assumes the spouse has the same age as the member. ** This is where a cash enhancement was paid in addition to the transfer value. *** This is additional pension lump sum at retirement that is not subject to any reduction to the annual pension amount. MYCONGRUENT.COM PAGE 2

4 WHO IS IT FOR? The service is aimed at business clients or individuals that require an independent valuation of safeguarded benefits lost in the transfer process which may include: An IFA instructed by the Financial Ombudsman Service ( FOS ) to pay redress to the customer who has a complaint upheld regarding a DB Pension Transfer. An individual who is seeking to bring a complaint regarding a DB pension transfer who would like to understand the value of potential compensation. A solicitor representing a client who is contemplating litigation but requires an estimate of the quantum of redress. A claims management company ( CMC ) looking to bring a complaint on behalf of a client to an IFA and/or the FOS. WHAT DOES IT COST? Registered users may obtain a 1 month trial without any cost or obligation to determine whether the service meets their requirements. WHAT TO KNOW MORE? If you would like to receive more information on the service or speak to a team member please contact team@mycongruent.com with the subject DB Pension Transfer. MYCONGRUENT.COM PAGE 3

5 ABOUT US Congruent was established in 2013 in response to a growing demand from corporate clients seeking independent, professional advice on banking services and financial product risk management and hedging arrangements. We advise businesses directly or through their professional advisors. We also provide expert witness services. ROGER GRENVILLE-JONES - DIRECTOR rgj@mycongruent.com Tel: +44 (0) Roger has held a senior position as a Head of Actuarial Function within a global insurance company and since then has been a consulting actuary for over twenty-five years. He has a wealth of experience in dealing with specialist financial products and is particularly experienced as an expert witness for financial complaints. Roger was appointed by the Financial Conduct Authority ( FCA ) to provide expert evidentiary analysis on the risk of certain financial products in disciplinary proceedings against a regulated firm. He holds an MA in Mathematics from Cambridge University and is a Fellow of the Institute and Faculty of Actuaries. He has also been a university lecturer in actuarial science. NASAR ZAMIR - DIRECTOR nz@mycongruent.com Tel: +44 (0) Nasar has held senior positions in institutional sales for a number of global investment banks (including head of Hedge Funds sales). His career in investment banking also includes positions in risk management and trading and spans more than two decades. He has considerable experience dealing with banking products - particularly derivatives and structured products and the banking and risk management processes associated with these products. Nasar holds a BSc( Hon) in Mathematical Sciences from the University of Bath, an MSc in Actuarial Science from City University (London) and a postgraduate certificate in Corporate Finance from the London Business School. He is an Affiliate of the Institute and Faculty of Actuaries. BUSINESS INFORMATION Congruent group of companies comprises a holding company Congruent Holdings Limited , and Congruent Management Limited that employs staff and purchases services for the group, and the following operating companies: Congruent Actuarial Limited : Regulated by the Claims Management Regulator in respect of regulated claims management activities - authorisation number CRM33563: Regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities - FCA Register for exempt professional firms - reference number IoA120: Subject to the jurisdiction of the Legal Ombudsman: Licensed by the Bar Standards Board to instruct the Bar directly for advice and for representation Congruent Administrators Limited and Congruent Trustees Limited : These companies provide scheme administration and professional trustee services to Small Self-Administered Schemes ( SSAS s) Congruent Risk Limited : Congruent Risk owns Congruent s proprietary software Congruent Analytics Limited and Congruent Financial Limited : These companies have been incorporated to reserve the names and for future use Each contracting company is solely responsible for execution of its contracts Professional Standards and Code of Conduct: Institute and Faculty of Actuaries Professional Indemnity Insurance: Insured through Pembroke Managing Agency Limited with Lloyd s Syndicate 4000 Registered address of all companies: Fenchurch Street, London, EC3M 6BL, United Kingdom VAT number (Congruent Actuarial Limited): Telephone: +44 (0) team@mycongruent.com or website form Primary website address: MYCONGRUENT.COM PAGE 4

FG17/9: Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers

Finalised guidance FG17/9: Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers October 2017 Terminology used in this guidance Assumed retirement date DB pension