PENSION TRANSFER PROCEDURES

PROFESSIONAL INDEPENDENT ADVISERS LTD PENSION TRANSFER PROCEDURES PROFESSIONAL INDEPENDENT ADVISERS LTD 1 PENSION TRANSFER PROCEDURES Version: August 2010

Pension Transfers, Opt Outs, Non Joiners and Pensions Switching Procedures A. Background Professional Independent Advisers Ltd has been granted special permission by the FSA to conduct this type of business. All pension transfers or opt outs must approved by our nominated Designated Pension Specialist s (DPS) who have the additional qualifications required by FSA, or checked by a DPS before the advice is delivered to the client. Mike Osborne currently holds the additional qualification and operates our "Pension Transfer" Desk. This type of business is defined as follows: In terms of the FSA permissions, a pension transfer includes any transfer of deferred benefits from an occupational scheme (or replacement contract such as a policy assigned to the member or a S32 Buy out Policy) as defined prior to A Day, to an alternative pension contract. The additional permissions are not required for transfers from one personal pension/shp/s226 to another, nor when benefits are commenced immediately upon transfer, known as pensions switching. In practice though, Professional Independent Advisers Ltd use the same processes for all pension transfers and 100% of pension transfer cases are checked a suitable qualified person. An opt out means a transaction in the course of which the customer opts out of membership of, or declines to join, an occupational scheme. Thus the regulator s definition of opt outs includes non joiners. Designated Pension Specialist s (DPS) additional qualifications: Exam Fellow or Associate Fellow or Associate by examination Unit AF3 of the Advanced Diploma in Financial Planning Fellow or Associate including three pensions related subjects as confirmed by the examining body G60 paper of Advanced Financial Planning Certificate Pensions paper of Professional Investment Certificate Body Faculty or Institute of Actuaries Pensions Management Institute Chartered Insurance Institute Chartered Insurance Institute Chartered Insurance Institute ifs School of Finance (Formerly the Chartered Institute of Bankers) The firm is required to have these written procedures for transfer and opt out business. It is essential that these procedures are followed in every case to ensure that our clients receive sound, expert advice and that we comply with all the requirements for conducting this type of business. PROFESSIONAL INDEPENDENT ADVISERS LTD 2 PENSION TRANSFER PROCEDURES Version: August 2010

B. Pension Transfers and Pensions Switching There are a number of steps to be taken in the course of giving advice to our clients as to whether it is in their interests to transfer their benefits from an existing arrangement. The steps are: Knowledge of our client s circumstances. Full analysis of the transferring scheme / arrangement, using our standard information request templates. Comparison of Pension Commencement Lump Sum (PCLS) entitlement. Full analysis of all relevant issues on transfer. Critical yield calculations for DB Schemes and deferred annuities / replacement contracts / S32 securing GMP. Comparison of projections of benefits for investment based (DC) arrangements. Early Retirement / Ill Health analysis, dependent on clients stated aims and needs. Analysis of investment options for investment based (DC) arrangements. Satisfactory outcomes indicated from the FSA Pension Switching Suitability Assessment Template for pensions switching cases. Suitability letter explaining the recommendations made. Checking and record keeping. Knowledge of the Client s Circumstances It is essential that you are aware of your client s financial, employment, health and other circumstances. You need to know his or her risk profile, attitude to early retirement and to the provision of benefits for partners and dependants. Finding out and recording these details will enable you to come to the right recommendation for your client. It may be that at this stage, it is apparent that our client s best interests are served by leaving the deferred benefits within the existing arrangement. You should complete the standard fact find in the normal way, but you will also need to record some additional information (e.g. attitudes to early retirement and dependants benefits) and to keep on file a copy of the occupational scheme brochure (if available) and deferred benefit statement/full plan details. There is an additional mandatory fact find for transfers from DB schemes. PROFESSIONAL INDEPENDENT ADVISERS LTD 3 PENSION TRANSFER PROCEDURES Version: August 2010

Defined Benefit (Final Salary) Schemes and Deferred Annuities Using deferred benefit information from the trustees of the ceding scheme, you must obtain a transfer value analysis (TVA), prepared in accordance with FSA Rules, which will enable you to compare the occupational scheme benefits with the provisions which may be possible under an individual personal pension arrangement. If you go on to recommend a transfer, you must give your client a copy of the TVA with a clear explanation of its meaning, drawing attention to the critical yield. Before giving the TVA to the client it must be checked for accuracy by the DPS. Arrangements that were classified as Occupational prior to 6 th April 2006 may have a protected entitlement to a higher PCLS. This protection will be lost on an individual, voluntary transfer and so you must analyse the PCLS entitlement and consider this as part of your recommendation. Arrangements established after 6 th April 2006 that have received transfers from pre 6 th April 2006 Occupational arrangements may also have a protected entitlement to a higher PCLS. An analysis of early retirement / ill health benefits should be included if relevant to clients stated aims and needs. Defined Contribution (Investment based) Arrangements (i.e. COMPS, CIMPS, AVCS, FSAVCS, EPPS, SECTION 32s, PP, Stakeholder) Whilst it is possible to obtain specific TVAs for transfers for investment based schemes, these are essentially comparisons of illustrations provided by the transferring and receiving arrangements. Therefore for transfers from purely investment based schemes a separate TVA is not required, providing that sufficient analysis has been conducted. Arrangements that were classified as Occupational prior to 6 th April 2006 may have a protected entitlement to a higher PCLS. This protection will be lost on an individual, voluntary transfer and so you must analyse the PCLS entitlement and consider this as part of your recommendation. Analysis of charges, normally achieved by comparing the own charge illustrations provided by the transferring and receiving arrangements. Where illustrations are not comparable, a factual comparison of charges must be made. These comparisons should be based the selected retirement age of the transferring product and, if different, also based on the clients target retirement age. You should only recommend a transfer to a higher charged contract where there is a clear need to do so now. Before recommending a transfer to a higher charged contract you must be able to demonstrate why the existing arrangement is no longer suitable, based on the clients current needs. PROFESSIONAL INDEPENDENT ADVISERS LTD 4 PENSION TRANSFER PROCEDURES Version: August 2010

There will be occasions where a transfer to a higher charged product is necessary. Examples of this would be; where the clients wishes to use their pension fund for commercial property purchase; where the existing arrangement has demonstrated poor performance in the sectors relevant to the client s needs; where the existing arrangement does not offer a fund selection suited to the client s needs. If the transfer is recommended based on the need for funds or features that not available under the transferring arrangement then these must be utilised immediately. It is not acceptable to recommend a higher charged product, based on the possibility of a future need. Consideration of any additional benefits provided by the transferring scheme, i.e. life cover, ill health early retirement benefits, guaranteed annuity rates, potential for discretionary increases or a share in an unallocated account. Possible reattribution proceeds. An analysis of early retirement / ill health benefits should be included if relevant to clients stated aims and needs. Consideration of the investment choices offered by both arrangements. If the transferring arrangement invests in a with profits fund you must conduct sufficient research in order to fully understand the status of the fund. You should consider issues such as; open or closed fund, the annual with profits guide, PPFM, asset allocation, reserves, and bonus distribution. The clients risk profile and stated aims and needs will determine the most suitable investment choice. It may be that straightforward, low cost funds are most suited to the client s needs and if so no attempt should be made to encourage the client into more complicated and expensive funds/product. In this case a stakeholder pension or equivalent charged product should be recommended. Where there are other overriding issues which make a stakeholder pension unsuitable, this must be fully explained in the suitability letter. Where a portfolio of funds is being recommended a robust review system must be put in place to ensure that the portfolio is regularly rebalanced and this should be detailed in the suitability letter. The need for regular reviews to ensure that the arrangement and investments remain suited to the client s needs should be clearly explained in the suitability letter and either a system for reviews put in place, or it made clear that the onus is on the client. Prior to delivering the advice the case must be checked using the FSA Pension Switching Advice Suitability Assessment Template to ensure satisfactory outcomes. Where the template indicates an unsuitable outcome you must refer the case to the Compliance Manager before proceeding further. PROFESSIONAL INDEPENDENT ADVISERS LTD 5 PENSION TRANSFER PROCEDURES Version: August 2010

Money Purchase with GMP Underpin A combination of both TVAs is required for these schemes and is it vital to consider the critical yield of the GMP element and as well as the Investment based aspects of the scheme. Suitability Letter You should prepare a Suitability Letter presenting the reasoning for your recommendations. This should replay the clients risk profile, aims and needs, as well as the results of the research into the clients existing arrangements. It should then explain the analysis carried out and the results. You should then present your recommendations with clear supporting reasons and highlighting the risks and any downsides of following the recommendations. The suitability letter should be provided at the point that the advice is delivered and before the clients applies for a transfer. This is because whilst cancelation rights apply to most transfers, there is no guarantee that the transferring arrangement will accept the transfer back. Where necessary it be checked and the file copy initialled by a DPS before it is sent. Please remember that the quality of the content of the suitability letter is as important whether recommending to transfer or not to transfer. Pension & Investment Advice and Sales Procedures These procedures are in addition, not in place, of the above. PROFESSIONAL INDEPENDENT ADVISERS LTD 6 PENSION TRANSFER PROCEDURES Version: August 2010

C. Opt Outs and Non Joiners These are transactions which involve a decision by a client to opt out of, or decline to join an employer sponsored scheme of which he is a member, or is eligible after a period to be a member, in favour of an individual pension arrangement. As with pension transfers, there are important steps to take to ensure our client gets the right advice: Knowledge of our client s circumstances. Employer sponsored scheme details. Projections of benefits provided by an individual pension arrangement. Suitability Letter. Checking and record keeping Knowledge of Client s Circumstances. Proceed as for Pension Transfers above. Employer Sponsored Scheme details You should obtain full details of the scheme which your client is, or will be, eligible to join, including the employer and employee contribution levels. Projections of Individual Scheme Benefits. Obtain projections based on replicating the range of benefits provided by the employer sponsored scheme in question. A copy of these should be given to our client with clear explanations, particularly covering the level of contributions which you have assumed. Suitability Letter. Taking account of all the information collected and following a detailed comparison of the benefits concerned, you should then set out your reasoning. If your advice is to opt out or not to join, the Suitability Letter must explain why you believe this to be suitable even though he is a member (or is soon to be eligible for membership) of an employer sponsored pension scheme. Your Suitability Letter must also include the actual or potential disadvantages of opting out together with calculations showing the financial implications of such a decision. Where your advice is to remain within, or to join the employer sponsored scheme, there is no requirement for a detailed rationale as it is generally assumed that such advice is in the client s best interests. The letter should be sent to your client for him to study (not just handed over at a meeting) and must be checked, and the file copy initialled by a DPS before it is sent. PROFESSIONAL INDEPENDENT ADVISERS LTD 7 PENSION TRANSFER PROCEDURES Version: August 2010

D. Execution Only Business. The nature and complexity of pension transfer and opt out business is such that genuinely execution only transactions are rare. You must therefore ensure that we have credible, documentary evidence to demonstrate that no advice was given in respect of a case believed to be genuinely execution only. Every execution only case must be clear shown in the new business system. E. Insistent Customers. Such a customer is one who wishes to ignore your advice and requires us to proceed with a transaction which you believe is not suitable to his best interests. Whilst you may proceed with the customer s wishes, you must confirm, in writing, to your client that your advice is not to proceed and must have credible, written evidence from the client of his intention to override your recommendations. Every insistent client transfer, optout or non joiner must be clearly shown in the new business system. PROFESSIONAL INDEPENDENT ADVISERS LTD 8 PENSION TRANSFER PROCEDURES Version: August 2010